BoE Hikes to 4% While US Inflation Stays Higher

On Thursday, the Bank of England (BoE) increased its key interest rate by a quarter point to 4%, its first hike since 2023. Meanwhile, US consumer prices are rising faster, but the Federal Reserve (Fed) held rates steady a week earlier.

In the year through September, US consumer prices rose 3.7%, compared with 3.5% in Britain. However, the BoE projects UK inflation will approach 5% by mid-2027, and British homeowners now face costlier mortgages and loans.

Fed Acted First While UK Inflation Heads Toward 5%

The Federal Reserve had already raised rates in September. When it held rates in October, the central bank said it needed more information before acting again.

The two central bank rates are now nearly equal: the UK rate stands at 4%, while the US range is 3.75% to 4%.

However, the UK's economic outlook is more concerning. The BoE expects inflation near 5% by mid-2027, or 6.2% if energy prices stay high for longer.

Eight out of nine Monetary Policy Committee members backed the rate increase, with Catherine Mann calling for a half-point rise. In the minutes, Governor Andrew Bailey indicated that further increases could follow.

"Without news which softens the risks to inflationary pressures, I can see the argument for a further increase in rates"

Energy Shock Hits Britain Harder Than America

The UK think tank NIESR described Britain as especially exposed in its spring outlook.

• The think tank cited Britain's heavy dependence on imported gas,

• It described the United States as a significant oil producer.

According to the Resolution Foundation, natural gas accounts for 62% of British household energy consumption, the highest share in the G7. The United States posted record net energy exports in 2025, per the EIA.

Are Traders Correct in Pricing Three More UK Hikes?

Sterling remained near $1.3468, while two-year gilt yields, which track rate expectations, rose about 0.03 percentage points to 4.77%.

Market participants are pricing in approximately three more UK rate increases by the end of 2027. That path would lift Brith 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.

Crude oil prices have fallen more than 7% since the US midterm elections. Still, every dissenter at the Federal Reserve and Bank of Japan last week wanted higher borrowing costs.

The Federal Reserve meets December 8-9 and the Bank of England on December 17.