Bank of England raises interest rates to combat rising inflation

The central bank’s Monetary Policy Committee said on Thursday it would raise interest rates from a record low 0.1%. to 0.25%, The first such move by any major central bank since the start of the pandemic.

UK consumer price inflation rose to 5.1% in November, the highest level in more than a decade, putting the economy at risk Inflation stagnated, a toxic combination of weak growth and inflated prices. December was seen as the weakest month for the economy since February, according to a business activity estimate released on Thursday.

The Bank of England said it expects prices to rise further.

“Bankers expect inflation to remain at 5% for most of the winter period and peak around 6% in April 2022,” the central bank said in a statement on Thursday. . Energy costs and wage growth will play a key role in driving higher inflation next year, it added.

Economists and investors had expected the Bank of England to raise interest rates in November to combat rising prices. But the central bank surprised observers by keeping the fire burning, sending December soaring but surely until recent days, when Omicron began to spread rapidly.

Higher official interest rates can increase borrowing costs for businesses and households, as well as encourage people to save more, thereby helping to reduce demand and inflation. But they can also take some of the heat away from the economy.

With inflation two and a half times above the central bank’s 2% target, price concerns overshadowed worries about the possibility that the Omicron variant could take a toll on the economy.

“While the Omicron variant is likely to affect activity in the short term, its impact on medium-term inflationary pressures is not clear at this stage,” the Bank of England said.

The world’s most influential central banks have responded to the pandemic with massive stimulus efforts. But their approach is currently diverging, with the US Federal Reserve signaling three rate hikes next year while the European Central Bank is expected to keep policy accommodative.

The US Federal Reserve announced Wednesday that it will complete its stimulus program faster than initially announced, and its updated economic projections suggest more rate hikes in the coming weeks. year 2022.

Fed Chairman Jerome Powell acknowledged that there is a risk that pandemic-era inflation will persist longer than initially expected.

“One of the reasons behind our move today is to put us in a position,” in response to inflation, Powell said.

–This is a developing story and will be updated.


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