The Bank of England (BoE) started the cycle of tightening monetary policy by hiking the UK Base Rate by 15 basis points to 0.25%, the first-rate hike in over three years, at the last Monetary Policy Committee (MPC) meeting of 2021. And additional rate hikes are already penciled in by economists for 2022 as UK inflation hits extreme levels last seen over 10-years ago.
The BoE hiked interest rates in December by 15 basis points to 0.25%, despite the ongoing surge in new Covid-19 cases. Many in the market had pushed back this rate hike until the next meeting in February 2022 on fears that the UK government may introduce harsh lockdown measures at a time when the UK economy is finally pulling out of the pandemic crisis of the last two years. The announcement of a new, virulent Covid-19 variant, Omicron in late November took the market by surprise and dampened any prevailing rate hike expectations. However, it seems like the BoE has chosen to look through these fears and have chosen to concentrate on official UK labour and inflation data instead.
UK headline inflation is now running at 5.1% on an annualized basis, the highest level since September 2011, according to the November Office for National Statistics report, as the cost of goods in the inflation basket surge.
Source: TradingEconomics.com/Office for National Statics
The current level of UK inflation is more than double the Bank of England’s target rate of 2% and with higher inflation expected over the next few months, the BoE has been forced to act to get ahead of the situation.
The UK Labour market is also robust with the employment rate rising to 75.5%, while the unemployment rate has fallen to 4.2%. In another sign that inflation may
