— Eight MPC members vote for a 15 basis point increase to 0.25%
LONDON (Mace News) – The Bank of England lifted its benchmark rate by 15 basis points to 0.25%, the first increase since August of 2018, according to minutes of Wednesday’s monetary policy committee meeting released on Thursday.
The move caught investors by surprise, as a handful of MPC members have recently voiced concern over the fast-spreading Omicron Covid variant, the emergence of which has prompted a return of light social restrictions in much of the UK. Most economists expected the Bank to wait until its February meeting before lifting rates.
However, an unexpected jump in CPI inflation to a 10-year high of 5.1% in November may have swayed the MPC. Eight members of the committee supported the rate hike, while external member Silvana Tenreyro voted to leave rates at a record-low of 0.1%.
“This week’s stronger than expected inflation data and the confirmation of an uneventful end to the furlough in the unemployment data gave the Monetary Policy Committee the confidence to act,” said Andrew Pottie, Senior Portfolio Manager at Titan Asset Management.
MPC members conceded that the latest Covid wave could dampen economic growth over the fourth quarter and into early 2022. The “omicron variant posed downside risks to the economy … [but] the inflationary pressures are unclear,” according to the minutes.
Growth had already slowed ahead of the decision, with gross domestic product rising just 0.1% between October and November. Falls in construction and manufacturing — due in part to a shortage of supplies — accounted for much of the weakness, according to officials at the UK’s Office for National Statistics.
The MPC also confirmed that, following operations on Wednesday, the Bank has exhausted its latest quantitative easing programme.
The BoE announcement followed the Federal Reserve’s pledge to accelerate the winding up of its own QE programme. The European Central Bank is due to announce its latest policy decision at 1245 GMT.