BoE raises interest rates to 0.25%

17 Dec 21

The Bank of England (BoE) has raised the base rate of interest to 0.25%, in response to surging inflation.

The Bank’s monetary policy committee decided to increase the rate from its previous level of 0.1%, marking the first rate rise since August 2018.

The decision comes following a surge in inflation – as measured by the Consumer Prices Index – to 5.1%, largely due to rising energy costs.

It’s projected to peak at around 6% in April 2022 – three times the Bank’s official target of 2%.

The news of an interest rates hike was something of a surprise, however, to many experts who were expecting the Bank to hold off on rate rises as uncertainty remains about the Omicron variant of COVID-19.

The BoE said that although Omicron is likely to weigh on the economy in the short-term, its impact on inflation in the medium-term “is unclear at this stage”.

Suren Thiru, head of economics at the British Chambers of Commerce, said:

“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.

“Without real improvement to the situation supply chains are currently facing, rising prices will continue to be an issue even with monetary policy responses.”

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