Bank of England raised interest rates

Yesterday the Bank of England raised interest rates for the first time in more than three years. The Bank acted despite fears of an Omicron hit to the economy as price rises threaten to spiral at a pace not seen in three decades. The Bank reacted by increasing interest rates from 0.1% to 0.25%.

Inflation is currently running the highest rate seen in the last decade, and at 5.1% the Bank’s Governor Andrew Bailey believes the direction of travel will continue upwards in the short term: “…that is, in the next two or three months – we think it can get to around 6%”.

James Rowbury, Investment Research Lead at Redmayne Bentley said: “The move from the MPC was surprising to say the least. Despite tones from last month’s meeting that the Bank would be more accommodative to the economic recovery, recent spikes in the cost of living have sent a clear message to the bank that they need to act to stop inflation spiralling out of control.”

“While the effect of the new Omicron variant is yet unknown (and possibly harmful to economic stability), the Bank felt that annual price increases of 7.1% (RPI) were too big to ignore. At this point, a move of 0.15% is relatively piecemeal and the impact will be more from its message: the bank are not afraid to act.”