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Bank of England is announcing a rate hike from pandemic-era lows

Bank of England is announcing a rate hike from pandemic-era lows

December 17, 2021: -The Bank of England on Thursday hiked interest rates for the first time since the onset of the pandemic, increasing its primary interest rate to 0.25% from its historic low of 0.1% as inflation pressures mount.

U.K. inflation hit a 10-year high in November as the Consumer Price Index increased by an annual 5.1%, up from 4.2% in October and above the Central Bank’s target of 2%. The Bank expects inflation to remain at nearly 5% through the majority of the winter period, peaking at about 6% in April 2022%.

Therefore, the labor market recovery has remained robust, with 257,000 staff added to payrolls, even after the end of the country’s furlough scheme.

Following the Bank, surprising markets which avoided a rate hike in November, many analysts had suggested that the subsequent data showing the economic conditions were in place to start tightening.

Although, most economists polled by Reuters are expecting the Bank Rate to be held at 0.1% going into the meeting on Thursday, in light of the emergence of the omicron variant and its rapid spread in the U.K.

At its November meeting, the MPC is suggesting that if incoming data, particularly on the labor market, were in line with its central projection, a hike would be needed to return inflation towards its 2% target.

“Recent economic developments suggest that these conditions have been met,” the Bank said in its report.

“The labor market is tight and has continued to tighten, and there are some signs of greater persistence in domestic cost and price pressures.”

The Bank’s nine-member Monetary Policy Committee voted 8-1 in favor of the 15 basis point hike while voting unanimously, maintaining the government bond-buying program at its target stock of £875 billion with £20 billion of corporate bonds.

On Tuesday, the International Monetary Fund had urged British policymakers to avoid “inaction bias” ahead of the vote.

The BOE also revised down its expectations for U.K. GDP by the end of the fourth quarter of 2021 by nearly 0.5% since the November report, which leaves the economy around 1.5% off its pre-Covid level.

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