Bank of England increase interest rate to 0.25%

The Bank of England raised rates for the first time in more than three years in response to calls to combat rising inflation. The Monetary Policy Committee voted 8:1 for the increase to 0.25%.

Prices fell to a record low of 0.1% in March last year in response to the impact of the coronavirus pandemic. The spike came despite concerns the Covid-Omicron option could slow the UK economy by making people spend less.

The Bank of England's decision to raise the base rate to 0.25% would add more than £15 to the typical monthly payment for tracker mortgage customers. Holders of a standard adjusted rate mortgage will likely pay an additional £10 per month.

While the savings rate may rise slightly, the returns are still well below the inflation rate. According to official figures, the cost of living increased 5.1% in the 12 months to November, compared with 4.2% in the previous month and the highest level since September 2011.

Banks could raise interest rates to keep price gains under control, but many experts expect this to continue due to Omicron's uncertainty. However, on Thursday, he said global asset prices such as stocks and bonds had primarily recovered after the initial decline in response to news of new options.

Successive waves of Covid also appear to have had less of an impact on economic growth, the bank added, although there is uncertainty as to the extent to which that will happen.

"Consumer price inflation in developed countries has increased faster than expected," the report added. "The Omicron option carries adverse risks for operations in early 2022, although the balance of its impact on supply and demand and thus on medium-term global inflationary pressures is unclear.

"The Bank of England's decision to raise interest rates came as a surprise given the growing uncertainty about the economic implications of the Omicron option," said Suren Thiroux, director of economics at the British Chambers of Commerce. "While today's rate hike may have little impact on most companies, it is seen by many as the first step in a longer-term monetary policy move rather than a partial reversal of last year's decline.

He added that the current spike in inflation was mainly due to global factors and that higher interest rates would do little to contain inflation further. Instead, he said the government needs to find practical solutions to the UK supply chain problems and labor shortages.