–Omicron Variant Set to Delay Rate Hike Widely Expected Before Year End
–Sharp Rise in November Inflation Could Provide Spirited Discussion
LONDON (MaceNews) – The Bank of England is likely to keep rates on hold at Wednesday’s final rate-setting meeting of the year, with the U.K. returning to partial Covid restrictions as the Omicrom variant sweeps the country.
The expectation of steady policy marks a reversal of forecasts ahead of the November meeting, at which investors and economists expected a 15-basis point increase in the Bank Rate, currently standing at a record-low of 0.1%. Bank of England Governor Andrew Bailey and his chief economist Huw Pill have both admitted that the November decision was finely balanced.
Although an unexpectedly-high jump in November inflation has complicated the immediate policy outlook. CPI surged to 5.1% last month, the highest since September of 2011, according to data released earlier on Wednesday. That’s more than double the Bank’s 2.0% target and far exceeds internal BoE predictions of a rise to 4.5%. Core inflation rose to 4.0%, the highest since 1992.
The UK economy was already slowing before the spread of Omicrom prompted the government to implement work-from-home orders on Monday. Gross domestic product rose by a meager 0.1% between October and November, lifted by the return of face-to-face doctors’ appointments largely cancelled during the depths of the pandemic. Were it not for a big boost from healthcare, output would have contracted in October.
However, most analysts believe a rate cut will come early in the first quarter, perhaps as soon as 4 February, the first rate-setting meeting of 2022, with inflation continuing to outpace expectations.
“I think they’ll buy another six or seven weeks of time,” said Simon French, chief economist at Panmure Gordon, who sees a “low risk” of a rate cut this week. “The cost of waiting is relatively low.”
The November CPI data were released ahead of the start of Wednesday’s Monetary Policy Committee meeting, the minutes of which are scheduled for release at 1200 GMT on Thursday. Andrew Bailey has not scheduled a press conference following Thursday’s announcement.
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