Bank of England raises interest rates to 0.25%

The Bank of England (BoE) has raised interest rates from 0.1% to 0.25% for the first time in over three years.

The decision was made in response to the rapid spread of the Omicron Covid-19 variant and increase in living costs, which rose from 3.1% in September to 5.1% in November, according to the Office for National Statistics.

This was 0.6% higher than expected in the November Monetary Policy Report.

In an open letter to the Chancellor of the Exchequer, BoE said it expects inflation to “rise further above target in the near term”.

The bank’s Monetary Policy Committee voted eight to one favour for raising the interest rate and warned that it now expects inflation to peak to around 6% in April 2022.

It said it aims to “set monetary policy so that inflation returns sustainably to its target at a conventional horizon of around two years”.

Suren Thiru, head of economics, at the British Chambers of Commerce, said: “While policymakers are facing a tricky trade-off between surging inflation and a stalling recovery, with the current inflationary spike mostly driven by global factors, higher interest rates will do little to curb further increases in inflation.

“Instead, it is vital more than ever that the government’s supply chain advisory group and industry taskforce start to provide some practical solutions to the supply and labour shortages that are continuing to stoke inflationary pressures.”

He added: “Without real improvement to the situation supply chains are currently facing, rising prices will continue to be an issue even with monetary policy responses.”