Bank of England makes its move

21st December, 2021

In an unexpected move, Bank of England (BoE) policymakers opted to tighten monetary policy at their December meeting in a bid to address surging inflationary pressures. The annualised rate of consumer price inflation rose to from 4.2% to 5.1% in November, reaching its highest level since September 2008. The BoE’s Monetary Policy Committee (MPC) voted by eight to one in favour of increasing the BoE’s base rate by 15 basis points to 0.25%. The decision represented the first increase in UK rates since August 2018; rates were slashed from 0.75% to 0.1% in March 2020 as the Covid-19 pandemic took hold.

The BoE warned that the impact of the Omicron variant is likely to curb economic growth in December and in the first quarter of 2022; moreover, activity in many sectors continues to be hampered by disruptions to supply chains and staffs shortages. Looking ahead, further increases are expected to be announced next year.

Responding to the news, the Confederation of British Industry commented: “The decision to raise interest rates signals that the MPC want to get off on the front foot in tackling rising inflation”. However, the British Chambers of Commerce (BCC) described the decision as “surprising given mounting uncertainty over the economic impact of the Omicron variant”. Warning that higher rates would do “little to curb further increases in inflation”, the BCC urged the Government to provide “practical solutions” to supply chain problems and staffing shortages.

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This article was sourced from Adviser-Hub.co.uk.

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