The Bank of England has raised interest rates for the first time since the start of the COVID-19 pandemic despite growing concern over Omicron.
Threadneedle Street’s monetary policy committee (MPC) voted to raise rates from the historic low of 0.1% to 0.25%, with pressure from surging inflation outweighing the risks to the economy from the new strain.
Figures show inflation hit 5.1% in November as energy prices skyrocketed and supply chains saw significant disruption. The MPC has an official inflation target of 2%.
The rate rise comes during deterioration in the economic outlook as the new variant hits consumer confidence.
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.”
