Research Briefing | Dec 16, 2021

UK BoE ignores Omicron uncertainty to hike rates

United Kingdom | BoE ignores Omicron uncertainty to hike rates

Even though Omicron is casting a huge shadow over the UK economy, the BoE today raised Bank Rate to 0.25% signalling a clear change of tack. Shifting from a risk management approach, concerns about a tight labour market and the need to reinforce inflation-fighting credibility are now at the forefront. Despite the change of approach, we still see Omicron as key to the near-term outlook.

What you will learn:

  • Though the strength of recent labour market data had fulfilled the criteria set by the MPC for hiking interest rates, the uncertainty caused by the emergence of the Omicron variant seemed to warrant a “waitand-
    see” stance.
  • If activity holds up, interest rates will rise further in 2022, though it’s
    hard to see the fog clearing enough to justify a hike in February. 
  • But if Omicron proves to be very damaging, the BoE could be forced to reverse course.
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