Bank Rate rises to 4%: what it means for your block's reserve fund and next year's budget

What happened

On 5 November 2026 the Bank of England announced that its Monetary Policy Committee had voted by 8 to 1 to raise Bank Rate by 0.25 percentage points, from 3.75% to 4%. The one other member voted for a rise to 4.25%. It is the first increase in more than three years, as Michael Race reported for BBC News.

The Bank’s summary says consumer price inflation rose to 3.5% in September and “is now expected to rise to around 5% by the middle of next year”, mainly because of higher energy prices linked to the conflict in the Middle East. It then expects inflation to fall. The Bank says monetary policy “is not on a pre-set path”. The next decision is due on 17 December 2026.

What it means for your building

Reserve fund interest. If your block keeps a reserve (sinking) fund in an interest-bearing account, a higher Bank Rate may mean a better rate, but only if the bank passes it on. Many business deposit accounts move slowly or not at all. As a worked example, an 80-flat block holding £120,000 in reserve would earn about £300 more a year for each 0.25 percentage points the bank adds, before any tax on the interest.

In England and Wales, section 42 of the Landlord and Tenant Act 1987 says service charge money and “any income accruing thereon” is held on trust, first to pay the costs it was collected for and then for the contributing leaseholders. So the extra interest normally belongs to the service charge fund and should show in the service charge accounts, not as company income.

Next year’s budget. The Bank expects inflation to reach about 5% by mid-2027, driven by energy. Blocks that set a budget for 2027 in the next few months may want to look again at the lines most exposed to that: communal electricity and gas, heating, contracts with annual price rises linked to inflation, and buildings insurance. If £60,000 of a block’s £100,000 budget rose by 5%, the budget would need £3,000 more, about £37.50 a flat a year in an 80-flat block. Your own figures will differ.

Loans. A few resident-run companies borrow to pay for major works. If yours has a loan on a variable rate linked to Bank Rate, its repayments may go up.

What to do now

• Ask your bank what rate the reserve fund account pays now, and whether a different account (for example a notice account in the company’s name, held on trust) would pay more. Keep the money in an account that is clearly held on trust for service charge purposes.
• Check that interest earned is credited to the service charge fund and shown in the year-end accounts.
• Review the assumptions in next year’s budget for energy, inflation-linked contracts and insurance before you send it to leaseholders.
• If the company has a variable-rate loan, check how much the repayments could change.
• Speak to your accountant about any tax on interest earned on trust money.

This is general information, not financial or legal advice.

How Freeholdpilot helps

Freeholdpilot keeps the company’s budget, bank account records and reserve fund balance in one place, records which account is the service charge (trust) account, and records board votes, such as approving the budget before it goes to leaseholders.