Experts predict the Bank of England could wait to hike interest rates

Experts predict the Bank of England could hold off on raising interest rates this week to wait and see the impact of the Omicron variant and ‘Plan B’ curbs on the economy amid fears over surging inflation

  • Bank of England’s Monetary Policy Committee will meet on Thursday this week
  • The committee will make its latest decision on whether to raise interest rates
  • Experts believe MPC could hold off hike to wait to see impact of Omicron on UK
  • Bank of England has been under pressure to raise rates to curb surging inflation 

Experts believe the Bank of England could hold off on raising interest rates this week in order to wait and see what impact the Omicron coronavirus variant and ‘Plan B’ curbs will have on the economy. 

The Bank’s Monetary Policy Committee is scheduled to meet on Thursday having been under pressure for months to increase rates to curb surging inflation. 

The MPC took financial markets by surprise in November when it opted to keep rates unchanged.

The Bank had been widely expected to press the button on a rise from 0.1 per cent to 0.25 per cent this month to rein in inflation.

But many economists and investors believe the recent emergence of Omicron and the Government’s move to impose ‘Plan B’ restrictions has increased the likelihood that the Bank will once again wait and see before taking action.

Experts believe the Bank of England could hold off on raising interest rates this week in order to wait and see what impact the Omicron coronavirus variant and ‘Plan B’ curbs will have on the economy

Bank of England Governor Andrew Bailey said in November that he was ‘very uneasy’ about inflation levels.

The Consumer Prices Index measure of inflation stood at 4.2 per cent in the 12 months to October this year, up from 3.1 per cent in September.

Bank of England Governor Andrew Bailey said in November that he was ‘very uneasy’ about inflation levels.   

The Bank has repeatedly said it expects elevated inflation levels to be temporary, predicting a return to its two per cent target in the next few years. 

Mr Bailey told MPs last month that he believed it would make sense to wait to see the impact on the economy of ending furlough in September before making a decision to increase interest rates.  

The MPC’s interest rates decision on Thursday is expected to be a close call among the Bank’s policymakers. 

Martin Beck, chief economic adviser to the EY Item Club, said: ‘The new Omicron Covid-19 variant has complicated the MPC’s December decision.

‘New restrictions globally threaten to hold up supply chains even more, while consumers and businesses could reasonably be expected to become more cautious to spend.

‘If Omicron’s economic impact were to prove more significant than expected, an interest rate rise in December’s meeting might have to be quickly reversed.

‘Given this, the case for the MPC to not raise Bank Rate this year and wait and see how the economic landscape looks when it next meets in February 2022 is a strong one.’

Allan Monks at JP Morgan said he believes the latest restrictions could knock monthly economic output by around 0.5 per cent in December and January.

This comes on top of supply chain troubles, which are already hampering the UK economic recovery.

He said: ‘The impact on confidence will be important – with people cancelling some spending plans for the future and voluntarily becoming more cautious in their behaviour.’

But the Bank faces a difficult balancing act as pressure builds on it to help bring inflation back to its two per cent target.

Official figures on Wednesday are expected to show another rise in inflation – to 4.8 per cent from 4.2 per cent, according to Pantheon Macroeconomics. 

Experts at BNP Paribas believe the majority on the MPC will still vote for a rate rise, although they admit the vote will be ‘finely balanced’.

They said: ‘The spread of the Omicron variant has added an element of additional uncertainty to the near-term outlook which makes such a move less compelling.

‘However, we think the majority of the Committee will be persuaded by the economic data, which clearly justify the start of the tightening process.’

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