Bank of England hikes interest rates for first time in three plus years
The Bank of England has today decided to hike interest rates for the first time since 2018.
In November the MPC voted by a majority of 7-2 to maintain interest rates at 0.1%, despite calls to increase them.
Earlier this month the International Monetary Fund said inflation would reach approximately 5.5% in early 2022- its highest in 3 decades- and warned the Bank of England against “inaction bias”.
The Bank’s Monetary Policy Committee (MPC) voted 8-1 to increase rates to 0.25%, concluding that pressure from soaring inflation currently outweighs the economic risks of the Omicron variant.
Last March rates were slashed to a record low of 0.1% in light of the initial coronavirus pandemic.
The Bank last raised interest in August 2018, when they hit 0.75%.
Yesterday fresh figures from the Office for National Statistics (ONS) revealed that the cost of living in the UK soared 5.1% in the 12 months leading up to November 2021, up from 4.2% in October, and the highest hike since September 2011.
Surging costs of transport and energy were mostly responsible for the rise, which far surpassed forecasts of a 4.7% jump.This rise is double the Bank of England’s initial target rate of 2%.
Jack Leslie, senior economist at the Resolution Foundation, warned yesterday that as prices are rising faster than wages, the UK faces a living standards squeeze, saying: “Fuel price inflation is at its highest level on record, going back to 1989, with prices rising 28.5% on a year earlier. And with factory gate inflation still rising, inflationary pressures will continue to build in early 2022, while pay packets continue to shrink.
“It’s too early to say how much affect the Omicron wave will have on inflation – and the extent to which falling demand will be offset by further supply chain disruption, which could push prices in either direction.
“But early 2022 is likely to marked by acute economic pain for some parts of the economy – notably hospitality – alongside a nationwide living standards squeeze.”
