The Bank of England (BoE) raised its main interest rate by a quarter point to 4% on Thursday, its first hike since 2023. Yet US prices are rising faster, and the Federal Reserve (Fed) held rates one week earlier.
American consumer prices rose 3.7% in the year to September, against 3.5% in Britain. But the BoE expects UK inflation near 5% by mid-2027, and UK homeowners now face costlier mortgages and loans.
The Fed Hiked First, and UK Inflation Is Heading to 5%
The Fed already raised rates in September. When the Fed held rates in October, it said it wanted more information before acting again.
The two rates now sit almost level, at 4% in Britain against 3.75% to 4% in the US.
Britain’s outlook, however, is worse. The BoE sees inflation near 5% by mid-2027, or 6.2% if energy stays expensive for longer.
Eight of nine policymakers backed the move, while Catherine Mann wanted half a point. Governor Andrew Bailey wrote in the minutes that more may follow.
“Without news which softens the risks to inflationary pressures, I can see the argument for a further increase in rates”
Why the Energy Shock Hits Britain Harder Than America
The National Institute of Economic and Social Research (NIESR), a UK think tank, called Britain particularly exposed in its spring outlook.
- It pointed to heavy reliance on imported gas, and
- Described the US as a major oil producer.
Gas supplies 62% of household energy use in Britain, the highest share in the G7, according to the Resolution Foundation. The US posted record net energy exports in 2025, per the EIA.
Will Traders Get the 3 UK Hikes They Are Pricing?
The pound held near $1.3468, while two-year gilt yields, which track rate bets, rose about 0.03 percentage points to 4.77%.
Traders now price about three more UK hikes by the end of 2027. That path would lift British rates above those projected for the US.
“…we only see room for one more hike over the next year compared with the three implied by markets,” disagreed Vivek Paul, UK chief investment strategist at the BlackRock Investment Institute.
Oil has fallen more than 7% since the US midterms. Still, every dissenter at the Fed and Bank of Japan last week wanted higher borrowing costs.
The Fed meets December 8-9 and the BoE on December 17.
