Bank of England Signals December Rate Rise: Mortgage Costs in Focus
Bank of England deputy Clare Lombardelli has kept a December rate rise on the table, with markets split 50/50 and a think tank warning rates may need to hit 5%.
Image: Wikimedia Commons / mattbuck, CC BY-SA 4.0
LONDON — Bank of England Deputy Governor Clare Lombardelli said on Tuesday she would not rule out another interest rate rise in December, keeping a second consecutive increase on the table a week after the Bank lifted its benchmark rate to 4%.
Lombardelli, the Bank's deputy governor for monetary policy, said the December meeting was "certainly plausible" for a further quarter-point rise, with markets pricing even odds. Her remarks arrived as the National Institute of Economic and Social Research warned rates may need to climb to around 5% to control inflation.
- Bank Rate rose to 4% from 3.75% on Nov. 5, the first rise since August 2023, on an 8-1 vote.
- Lombardelli would not rule out a rise in December or February.
- Markets price about a 50% chance of a December rise.
- The National Institute of Economic and Social Research expects inflation to peak at 4.4% in February 2027; rates may need to reach 5%.
Will the Bank of England Raise Interest Rates in December 2026?
Speaking on Tuesday, Lombardelli said the conditions for persistent inflation were taking shape. "The conditions for persistent inflationary dynamics over the medium term are crystallising," she said in a speech at a central banking conference hosted by King's Business School and the Money, Macro and Finance Society.
Asked about her voting intentions, she refused to commit to either of the next two meetings. "I wouldn't rule December in or out, February in or out," she said, adding that each meeting was "live". Her vote would turn on the Middle East conflict, energy prices, and labour market data. "But I wouldn't rule it out. Equally, I don't have enough information just yet," she said.
The stance echoes the language she used when the Monetary Policy Committee voted 8-1 on Nov. 5 to lift Bank Rate by 25 basis points to 4% from 3.75%, its first increase since August 2023. Catherine L. Mann, the one dissenter, preferred a half-point rise.
How a December Rate Rise Would Affect Mortgage and Savings Rates
A further quarter-point rise would take Bank Rate to 4.25%, feeding straight into borrowing costs. Tracker mortgage payments would rise by the same amount, and lenders would reprice new fixed-rate deals. Savers would see slightly better returns.
The pressure is not confined to Britain. The Federal Reserve is also heading towards a December increase after United States consumer prices rose 0.4% in October, according to the U.S. Bureau of Labor Statistics. Federal Reserve Governor Christopher Waller said he was leaning towards a quarter-point rise.
Why the Bank of England Warns Rates May Need to Reach 5%
The case for further tightening rests on inflation that has stopped falling. The Office for National Statistics reported consumer price inflation of 3.5% in September, up from 3.1% in August, with energy costs pushed higher by the conflict in the Middle East. The National Institute of Economic and Social Research expects a peak of about 4.4% in February 2027.
The institute says rates need to reach around 5% to control stubborn inflation, and a rise to 4.25% would not be enough. The Bank has not endorsed that level.
| Measure | Reading |
|---|---|
| Bank Rate after Nov. 5 decision | 4.0% |
| Consumer price inflation, September | 3.5% |
| Inflation peak forecast | About 4.4% in February 2027 |
| Rate level the institute says may be needed | About 5% |
| Next rate decision | Dec. 17, 2026 |
Frequently Asked Questions
When is the Bank of England's next interest rate decision?
The next decision comes on Dec. 17, 2026, with another meeting in February 2027.
What is the current Bank of England base rate?
Bank Rate stands at 4%, after the Monetary Policy Committee voted 8-1 on Nov. 5 to raise it from 3.75%. It was the Bank's first increase since August 2023.
How much would a December rate rise add to mortgage costs?
A quarter-point rise would lift Bank Rate to 4.25% and raise tracker mortgage payments by the same amount. New fixed deals would cost more.
Could UK interest rates really reach 5%?
The National Institute of Economic and Social Research says rates may need to reach around 5%, with inflation expected to peak at about 4.4% in February 2027. The Bank has not endorsed that level.
The Office for National Statistics publishes labour-market figures on Nov. 17 and October inflation data on Nov. 18, giving the committee its last full read on prices and pay before it decides on Dec. 17.
