London, Dec 16, 2021 (AFP)
The Bank of England on Thursday lifted interest rates to 0.25 percent to combat decade-high inflation, in a "finely balanced" decision due to mounting fears of economic fallout from Omicron.
The BoE's monetary policy committee voted 8-1 to raise rates from a record low 0.10 percent but unanimously maintained quantitative easing stimulus, it said in a statement that flagged more hikes to come.
That marked the first increase in more than three years and made Britain the first of the G7 nations to lift borrowing costs since the start of the pandemic.
In reaction, the British pound jumped higher versus the dollar and euro as the move confounded most analysts' expectations for no change.
The news comes after the Federal Reserve this week laid out inflation-fighting plans and paved the way for US hikes next year, but the European Central Bank held record-low eurozone interest rates and insisted it was very unlikely to raise them in 2022.
- 'Finely balanced' -
The BoE decision followed official data which showed Wednesday that UK inflation rocketed in November to 5.1 percent, more than double its 2.0-percent target.
"The Committee continues to judge that ... some modest tightening of monetary policy over the forecast period is likely to be necessary to meet the inflation target sustainably," read minutes from the meeting.
They continued: "Most members of the committee judged that an immediate, small increase in Bank Rate was warranted.
"Although the conditions for tightening set out in November had been met, the decision at this meeting was finely balanced because of the uncertainty around Covid developments."
Policymakers cautioned that the Omicron coronavirus variant, which has forced Britain to re-impose Covid restrictions this week, posed downside economic risks alongside the ongoing supply crunch.
Almost 80,000 people in Britain tested positive for Covid-19 in a 24-hour period on Wednesday -- the highest daily number since the pandemic hit.
"Growth in many sectors has continued to be restrained by disruption in supply chains and shortages of labour," the minutes added.
"The impact of the Omicron variant, associated additional measures introduced by the UK government and devolved administrations, and voluntary social distancing will push down" on the economy in December and in the first quarter of next year.
The BoE had slashed its main interest rate to a record-low 0.1 percent at the start of the pandemic in order to boost Britain's Covid-ravaged economy.
However, global inflation has since accelerated sharply after the world emerged from lockdowns earlier this year, as companies struggled to meet demand for goods, energy and other services.
The BoE forecast Thursday that UK inflation would hold around 5.0 percent "for the majority of the winter period".
And the bank predicted it would peak at about 6.0 percent in April 2022 due to surging domestic energy bills and soaring natural gas prices.
- 'Bold move' -
Rampant inflation has, for the time being, eclipsed potential economic turmoil from the latest variant, commentators agreed.
"The Bank of England opts for a bold move to fend off inflationary pressures," said KPMG chief economist Yael Selfin.
"The MPC had to strike a delicate balance between above-target inflation and tight labour market on the one hand, and a weaker short-term outlook and increased Covid uncertainty on the other."
The UK economy was already struggling prior to Omicron, growing by an anaemic 0.1 percent in October from 0.6 percent in September.
November marked the highest inflation since September 2011, raising the alarm over stagflation -- a vicious mix of low economic growth and high inflation.
"The Bank of England has thrown out an anchor to try stop the fast currents of inflation taking the economy into more dangerous waters," noted Hargreaves Lansdown analyst Susannah Streeter.
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Sumber : AFP
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