U.S. President Donald Trump’s midterm election losses haven’t helped the U.K. economy — yet.

The Bank of England’s nine-member Monetary Policy Committee announced on Thursday it has overwhelmingly voted to increase interest rates to 4% from 3.75%, the first time since August 2023 to combat rising prices driven by the war in Iran.

Unlike the U.S. Federal Reserve and European Central Bank, the Bank of England has been reluctant to raise rates for fear of denting the British economy.

Until now, Governor Andrew Bailey and other MPC members have preferred to wait and see whether higher energy prices spilled over more broadly.

But the Bank was forced to increase rates after U.K. inflation came in at 3.5% in September, while the economy posted better-than-expected growth figures — raising the risk prices could take off.

The MPC on Wednesday voted 8-to-1 to raise rates, arguing the energy shock since the war began has built “sufficient” inflation pressures to justify a hike.

The dissenting vote from Catherine Mann was for a larger increase of 0.5 percentage points.

But Bailey made no secret of the fact that the future health of the U.K.’s economy depends on what the U.S. does in Iran.

“Today’s increase shouldn’t be seen as the first in an inevitable long sequence of hikes,” Bailey said.

“But, unless the conflict in the Middle East is resolved, neither does it seem likely to be the last increase.”

The Bank projected inflation would pick up to nearly 5% by the second quarter of 2027, higher than its previous forecast, with greater spillover into wages and other prices.

Under an adverse scenario, in which prices stay higher for longer and the conflict in the Middle East continues to flare, inflation would hit 6.2% in the third quarter of 2027.

Thursday’s decision, which comes a week after Chancellor John Healey delivered his first budget under the specter of Brits paying the highest energy prices in three years, will further squeeze struggling U.K. households and businesses already hit with higher energy bills and mortgage rates.

The tougher financing backdrop could hurt the Burnham government’s promises to tackle the cost of living. Yet rampant inflation would also undercut that pledge.

Still, the Bank’s top brass also pushed back on market expectations that rates could by hiked to 4.75% or 5% in 2027 — which could help bring down decades-high government borrowing costs.

The Trump factor

The decision comes as the rout of Trump’s Republican Party at the U.S. midterm elections on Tuesday raised the prospect of a peace deal in the Middle East.

A thaw in the conflict could bring down fuel prices by easing pressure on oil supplies and improve the cost-of-living picture for U.K. households.

There were reports Trump could respond to his party’s losses by embarking on a bombing campaign in the Middle East, but the U.S. president appeared to accept on Wednesday that higher petrol prices affected his popularity and struck a more conciliatory tone on the prospect of peace negotiations. 

U.S. Vice-President JD Vance blamed the Iran war for the electoral losses. And U.K. Prime Minister Andy Burnham said Wednesday that the elections create an opportunity to focus on the cost of living.

Oil prices fell sharply on Wednesday, amid expectations Democrats could also limit Trump’s funding for the conflict. The possibility of a ceasefire could yet be subject to Trump’s whims.

Regardless, U.K. consumers will feel the pinch through a rise in the energy price cap in January. 

Even if falling oil prices persist over the next few weeks, the price cap is likely to rise substantially because of a lag in the way it is calculated. 

The Bank forecast the cap will hit £2,150 in the first quarter of 2027. Food price increases, which have so far been muted, could hit 4.75% by mid-2027 as companies pass through higher costs.

Healey’s budget will knock 0.25 percentage points off inflation by the second quarter of next year, the Bank said, while tighter fiscal policy to bring down the deficit would likely detract from growth in the medium term.

A senior Iranian official mocked JD Vance on Thursday for a lengthy social media post in which the U.S. vice president conceded that the American-Israeli war on Iran caused the Republican Party’s midterm election meltdown this week.

“Losing gambler energy, can’t walk away from the table. Boss is prepping the next war phase while America teeters on an Israel-First cliff. Skip the TED talk. Why not say this to your boss?” Mohammad Bagher Ghalibaf, the speaker of Iran’s parliament, shot back at Vance.

In his screed on X, published less than 24 hours after the Republicans suffered an election wipeout, Vance pointed to four things that needed to happen for voters to return to the party in future ballots.

“1) End the war. 2) Focus on cost of living/inflation. 3) Put America First. 4) Change our relationship to Israel,” Vance argued, in a missive that he personally drafted and which marked his first post-election attempt to distance himself from a war that U.S. President Donald Trump has repeatedly defended.

The U.S. and Israel attacked Iran on Feb. 28 this year, decapitating much of its top leadership. But the Tehran regime retaliated by attacking U.S. targets in the Middle East and closing off the Strait of Hormuz — a vital maritime chokepoint for the supply of oil and gas — by threatening ships attempting to traverse the waterway.

The standoff drove up the price of fuels and fertilizer, which raised the cost-of-living in the U.S. and contributed to a brutal electoral environment for the Republicans, who suffered a generational defeat on Tuesday night.

While Vance stated that “the reason we lost is the war,” Trump has been insistent that the conflict is necessary to prevent Iran from obtaining a nuclear weapon.

Europe is feeling more than a little bit of schadenfreude.

In a stunning U.S. midterm election, Democrats regained control of the House of Representatives and the Senate, as well as several governorships, winning big in Republican strongholds like South Carolina, Texas and even Kansas. While some races were yet to be called Wednesday morning, the result is a monumental rebuke of U.S. President Donald Trump.

For Europe, which has weathered Trump’s incessant verbal attacks and tariff threats for the last two years, it was a rare ray of hope in transatlantic politics — if not because Washington would become a more predictable partner, then at least because the U.S. president might be too distracted to focus his usual ire on Europeans.

European Parliament Vice President Sophie Wilmès, a former Belgian prime minister, heralded a “major shift in the balance of power in the U.S. Congress,” adding: “I hope it will lead to a calmer, more constructive relationship with Europe.”

It remains to be seen how Trump will shift his stance on Europe, if at all, with Congress no longer under his control. As president, he still retains many of the executive’s powers on foreign policy.

German Defense Minister Boris Pistorius called the Democratic victory “historic” but cautioned against Europe expecting too much. “We will seek close contact with the Democrats,” he said Wednesday morning at the Berlin Security Conference. “But we do not know what the president will do after the election in the near future.”

Two senior EU figures — both regular Trump antagonists — couldn’t resist celebrating the result, though.

“American society voted against policies that only impoverish,” Spanish Prime Minister Pedro Sánchez said. “Against hate. Against sexism. Against climate change denial and against the privileges of the elites.”

Polish Foreign Minister Radosław Sikorski reshared his own tweet from June last year responding to Elon Musk, a key Trump ally. “See, big man, politics is harder than you thought,” he snarked.

Headache for Europe’s far right

For Europe’s ascendant far right, which has long balanced admiration for Trump with the reality that he is deeply unpopular across the continent, the midterms are an uncomfortable reminder of the political risks of being too closely associated with the U.S. president.

Jordan Bardella, leader of France’s National Rally (RN), was keen to chalk up Trump’s “unfavorable” result to his decision to go to war with Iran more than anything else.

“It’s the case that the U.S. intervention in Iran has had a very strong impact on the U.S. economy, but also on the European economy,” he said Wednesday morning.

Bardella added that the RN’s presidential candidate Marine Le Pen was still leading in the French polls ahead of next year’s election and insisted defeats for nationalist politicians in Brazil, Hungary and now the U.S. did not bode ill for his party’s chances.

But the cost-of-living crisis was top of American voters’ minds, according to polls. That’s also the case in European countries, from France to Spain to Greece, which are grappling with soaring rents and widespread anger at apparently impotent governments.

Marine Tondelier, leader of France’s Greens, said Trump had “made the United States the laughingstock of the world” and called the result a “warning for France” ahead of the presidential election in April.

“If our country brings the RN to power next year, it will meet the same tragic fate as the United States,” she said.

U.S. Ambassador to NATO Matthew Whitaker sought to downplay the prospect of a shift in Washington’s foreign policy following the midterm elections, insisting that the issues facing the U.S. and its European allies remained unchanged.

“The foreign policy of the United States has not changed,” Whitaker said, adding that “the issues that we’re facing as a country and as an alliance are the same.”

European markets, meanwhile, greeted the results with cautious optimism. Paris, London and Frankfurt opened slightly higher on Wednesday, following the Democrats’ sweeping victory.

Reality check for Trump

For all the celebrations, European officials were also quick to acknowledge that a Democratic-controlled Congress does not automatically translate into a more accommodating U.S. administration.

Trump retains considerable room to maneuver on foreign policy, including on the issues that have most strained transatlantic ties: European security, trade and Russia’s war in Ukraine.

France’s Economy Minister Roland Lescure noted Wednesday morning that while Trump would be “quite weakened” domestically, the “unpredictable” president remained “in charge of international policy.”

But a hostile Congress could make it harder for him to push through his domestic agenda, while opening the door to greater scrutiny of his administration.

“Voters have a habit of balancing power,” Finnish MEP Mika Aaltola said on X, “and now the president’s hands are more tied in domestic and foreign policy.”

Former Italian Prime Minister Enrico Letta was more emphatic.

“Europe is much stronger” thanks to the “blue wave,” he wrote on X.

Kathleen Van Brempt, vice-chair of the European Parliament’s International Trade Committee, shared a White House tweet predicting a Trump victory — and captioned it that it was, actually, America that won.

“And he lost,” she said.

Despite the ballot-box drubbing, Trump himself couldn’t resist a final shot at Europe, during an election night call with Fox News.

“You look at Europe, it’s dying. You look at what’s going on in France, what’s going on in Italy and all these other countries. I mean, they’re going through a terrible time. And they may not even survive, frankly,” he warned. “And we are thriving.”

European capitals are watching these midterms closely — but are under no illusions that a Democrat-led Congress could reverse the new world order shaped by President Donald Trump.

The MAGA movement has few friends among European governments, given Trump’s backpedaling on support for Ukraine and NATO. The president’s war in Iran has caused economic chaos across the continent and his frequent browbeating of European leaders is a headache they could do without.

So Europe will be watching for two things tonight — firstly, an election that leaves Trump so weakened at home that he’s somehow more stymied abroad. This feels optimistic: Foreign affairs remain the White House’s prerogative whichever party controls Congress, and history shows that presidents tend to have an even greater overseas focus in their final years in office.

Second, European leaders will be watching for any hint of the direction the U.S. might be headed in 2028. Any prospect of a 48th president with a more traditional American view of the world — embracing NATO, Europe and free trade — would be warmly welcomed.

But more important still would be any sign that the MAGA movement itself is on the wane. Europe knows full well from the Joe Biden presidency that any reversion to a more conventional president is only going to be temporary for as long as the Republican Party remains of a MAGA mindset.

At some point, maybe around the time Joe Biden declared on the debate stage that he “finally beat Medicare,” Washington got the idea that defeating an old man in an election was easy.

Not always.

Just days before an American election viewed by many voters as an opportunity to neuter an unpopular 80-year-old president, voters in Brazil and Israel delivered a vivid reminder that an old man in his country’s highest office usually didn’t get there by accident.

In Brazil, a decisive majority of voters on Sunday returned left-wing President Luiz Inácio Lula da Silva for a fourth term, defying expectations that Brazilians were ready to discard the fiery trade unionist as yesterday’s man. In Israel’s Tuesday election, Prime Minister Benjamin Netanyahu — the longest-serving premier in his country’s history — lost his parliamentary majority but may have thwarted his opponents from electing a viable governing coalition.

Lula, 81, and Netanyahu, 77, have almost nothing in common except their age and political resilience. They have towered over their countries for more than a generation, outfoxed prosecutors and humiliated electoral rivals, enraged and entranced Washington. They have done it with the loyal support of voters on the left and right who view each man in heroic terms, as a tireless champion of their interests and a shield against the most fearsome enemies.

President Donald Trump has, at times, shared those political traits. If he has one more escape act left in him, it would look more like what we’ve just seen in Israel and Brazil than anything in Trump’s second term so far.

Since returning to office in 2025, Trump has failed to deliver policy victories that most voters can feel in their own lives, while shedding some of the most important parts of the political identity that forged his populist base. He ran for president in 2024 pledging to whip inflation and railing against needless foreign wars. Trump’s signature acts this term — passing the One Big Beautiful Bill Act, waging a global trade war, attempting regime change in Iran — have made health care, consumer goods and energy more expensive.

What is his closing message in the midterm election? Trump makes one argument consistently: that Democrats are crazy. But you’d be hard-pressed to find a convincing through line in a series of campaign-trail monologues boasting about the economy, trashing individual Democratic candidates as weirdos and subversives, musing about renaming oceans, defending the Cheesecake Factory and admiring Jon Husted’s rock-hard bod.

Compare this to what voters heard in Brazil and Israel: relentless, ruthless, shameless appeals to the political coalitions that Lula and Netanyahu forged over decades.

In Brazil, Lula tapped into the regional and class-based divisions that have defined his electoral career, while offering a buffet of new economic promises to voters in his base. He hiked welfare payments, promised voters free public transit on weekends and endorsed a shorter workweek. His 45-year-old opponent, Flavio Bolsonaro, stumbled in the final days with a dismissive comment alluding to an accident Lula suffered as a young metalworker — a remark apparently taken by many voters as a gratuitous sneer at the working class.

In Netanyahu’s fight for political survival, the Israeli leader delivered an apocalyptic message aimed at polarizing the electorate to his advantage. He posted an AI-generated image of a nuclear strike on Tel Aviv, branded his challengers as soft on Iran and derided Arab political parties as an enemy within. Israeli and American news outlets have reported that Netanyahu pushed the military for a new wave of attacks on Iran before the election, an escalation that might have reshaped the campaign’s final days.

If Trump had approached the midterms with Lula- or Netanyahu-like focus and vigor, he would probably still be a very unpopular president. But he might be a very unpopular president with a firm grip on the red states that control the Senate, instead of scrambling in October to defend Kansas and Mississippi.

Trump’s populist campaign tactics have been comparatively slapdash and unresponsive to voters’ real needs. He floated giving away $5,000 checks to Americans if Republicans keep control of Congress, only to see lawmakers from his own party pan the idea as a budget buster. He has handed out locally tailored goodies — new funding pledges for a pipeline in Alaska, tariff exemptions as a gift to Maine — that might make a difference on the margins but can’t substitute for a national message on the cost of living.

And Trump has not made a concerted effort to heal the breach within the MAGA base over the war in Iran. He has toggled between Bibi-like warnings about nuclear attacks on Southern California and assurances that the war will end after the November election, all while fuel prices stay painfully high for the people who put him in office.

It may add up to the least effective campaign ever for the man who has overwhelmed American politics for 11 and a half years.

And yet, the midterms are not the end of the story.

Even a broad defeat for Republicans next week would leave Trump with half a term to work with. Two more years to recover his footing, return to political basics, reconnect with his base and fight, fight, fight for relevance and recovery. There is a bag of tricks available to him, if he were to get serious about salvaging his presidency.

For Trump’s opponents, the warning from abroad remains: Beware the old man in a hurry.