The Bank of England raised Bank Rate to 4% on 5 November while its own committee conceded "limited evidence of knock-on effects on other prices and wages". The Bank of England said the Monetary Policy Committee "voted by a majority of 8–1 to increase Bank Rate by 0.25 percentage points, to 4%." Consumer prices rose 3.5% in the 12 months to September, according to the ONS, up from 3.1% in August; core inflation was 2.8%, up from 2.6%. Bank staff project around 5% in the second quarter of 2027.
Catherine Mann was the one dissenter, and she wanted more. In her view, "a 50-basis point hike in Bank Rate is 'good policy'." That would have taken Bank Rate to 4.25%.
The committee points to energy as the main source of pressure. It said that "Global energy prices have continued to rise from an already elevated level", and the conflict in the Middle East is now in its ninth month. That is a supply shock, and it is where Friedrich Hayek's best-known argument bites.
In "The Use of Knowledge in Society" (1945), reprinted on Econlib, Hayek described "the price system as a kind of machinery for registering change". His example was tin: a buyer need not know which of two possible causes has made it scarcer, only that it now costs more. Apply that to energy. The price already tells every British firm and household to use less, whatever is happening in the Middle East. A higher Bank Rate sends no message about energy. It cannot produce a single barrel. It cuts spending across the whole economy, and the burden falls on whoever borrows. That last step is our reading, not the committee's words.
Hayek wrote about relative prices, not about Bank Rate, so the idea does not settle the question. It does explain why a rate rise is a blunt answer to a shortage.
The other side is the standard doctrine of looking through supply shocks. Gabriel Makhlouf, Governor of the Central Bank of Ireland, citing the ECB's framework in a speech published by the BIS, said that "if the shock is limited and short-lived, look through to avoid doing more harm than good." The MPC did not use the words "look through". Its language is persistence: it "would particularly need to guard against second-round effects that created inflation persistence." The worry is that higher energy bills feed into wages and other prices, and stay there.
The committee judged that the risk of material second-round effects had risen further since September. Alan Taylor, another member, said that "this is not the start of a hiking cycle", and described it as a one-for-now insurance hike.
Insurance is a defensible bet. It is still a bet on a 5% projection that core inflation, at 2.8%, has not yet confirmed, and Mann's larger step had less evidence still.
Watch for: the ONS inflation figures on 18 November, the first reading since the vote, and the committee's next decision on 17 December. If core inflation stays close to 2.8% while the headline climbs, Taylor's one-for-now will look right.
Cover image: Bank of England entrance, London, photographed 20 September 2025. Photo: The wub / Wikimedia Commons, CC BY-SA 4.0.