Bank of England becomes 1st major central bank to raise rates since COVID began
Global News
The Bank of England said it had to act now, even as the Omicron COVID-19 variant sweeps Britain, because it saw warning signs in underlying inflation pressures.
The Bank of England on Thursday became the world’s first major central bank to raise interest rates since the coronavirus pandemic hammered the global economy, and warned inflation was likely to hit six per cent in April – three times its target level.
Surprising investors for the second time in six weeks, the BoE said it had to act now, even as the Omicron coronavirus variant sweeps Britain, because it saw warning signs in underlying inflation pressures.
The nine-member Monetary Policy Committee voted 8-1 to raise Bank Rate to 0.25 per cent from 0.1 per cent, with external member Silvana Tenreyro providing the only dissenting voice.
Governor Andrew Bailey said Omicron was already hurting retailers and restaurants but the BoE had felt compelled to stop the recent jump in prices from becoming a longer-term problem.
“We’re concerned about inflation in the medium term. And we’re seeing things now that can threaten that. So that’s why we have to act,” Bailey said.
It was unclear whether Omicron would ease or add to inflation pressure “and that’s a very important factor for us,” he said.
Sterling jumped almost a full cent against the U.S. dollar to its highest since Nov. 30, and interest-rate sensitive two-year gilt yields rose by as much as 9 basis points on the day to 0.58 per cent, their highest since Dec. 1.
Most economists polled by Reuters had expected the BoE to keep Bank Rate at 0.1 per cent due to the Omicron variant, which pushed COVID-19 cases in Britain to a record high on Wednesday.
