The Bank of England has raised interest rates for the first time since the start of the coronavirus pandemic despite mounting concern over the Omicron variant.
Threadneedle Street’s monetary policy committee (MPC) voted to raise rates from the historic low of 0.1% to 0.25%, judging that pressure from surging inflation outweighed the risks to the economy from the new variant.
Official figures showed inflation hit 5.1% in November amid soaring energy prices and global supply chain bottlenecks, hitting a rate the Bank hadn’t expected to be reached until the spring. The MPC has an official inflation target of 2%.
However, the rate rise comes amid a severe deterioration in the economic outlook as the Omicron variant triggers a collapse in consumer confidence and leads to a wave of cancellations for hospitality businesses during the key festive trading period.
Click here to visit the Bank of England website to find out more.
Commenting on today’s interest rate decision by the Bank of England’s Monetary Policy Committee, Suren Thiru, Head of Economics at the British Chambers of Commerce (BCC), said:
“The Bank of England’s decision to raise interest rates was surprising given mounting uncertainty over the economic impact of the Omicron variant. While today’s rate increase may have little effect on most firms, many will view this as the first step in a longer policy movement – not as a partial reversal of last year’s cut.
“While policymakers are facing a tricky trade-off between surging inflation and a stalling recovery, with the current inflationary spike mostly driven by global factors, higher interest rates will do little to curb further increases in inflation. Instead, it is vital more than ever that the Government’s Supply Chain Advisory Group and Industry Taskforce start to provide some practical solutions to the supply and labour shortages that are continuing to stoke inflationary pressures.
“Without real improvement to the situation supply chains are currently facing rising prices are likely to continue to be an issue even with monetary policy responses.”
"While today’s rate increase may have little effect on most firms, many will view this as the first step in a longer policy movement."
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