The Bank of England has raised interest rates from 0.1% to 0.25%, in response to calls to tackle surging price rises.
At its meeting ending on 15 December 2021, the Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 8-1 to increase Bank Rate by 0.15 percentage points, to 0.25%.
Twelve-month CPI inflation rose from 3.1% in September to 5.1% in November, the highest rate since September 2011, and significantly above the Bank's 2% inflation target.
A number of analysts and businesses have suggested the rate rise would have little impact on prices, as cost increases are being pushed higher by global factors outside the Bank's control.
In the MPC’s projections in the November Monetary Policy Report, global and UK GDP were expected to recover further from the effects of Covid-19 (Covid) in the near term as supply disruption eased, global demand rebalanced from goods to services, and energy prices stopped rising. However, since the November MPC meeting, the Omicron Covid variant has emerged.
“The level of global GDP in 2021 Q4 is likely to be broadly in line with the November Report projection, but consumer price inflation in advanced economies has risen by more than expected. The Omicron variant poses downside risks to activity in early 2022, although the balance of its effects on demand and supply, and hence on medium-term global inflationary pressures, is unclear”, the Bank of England added.
The Bank has revised down their expectations for the level of UK GDP in 2021 Q4 by around 0.5% since the November Report, leaving GDP around 1.5% below its pre-Covid level; “Growth in many sectors has continued to be restrained by disruption in supply chains and shortages of labour”.
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