Bank of England surprises by hiking Bank Rate
- For the second time in a row, the Bank of England (BoE) surprised markets. It voted by a majority of 8-1 to increase Bank Rate from 0.1% to 0.25%. The consensus had expected a postponement to February 2022.
- The consensus (and our) expectation were solely built on the spread of the Omicron variant and its unclear ef-fects. Instead, labour market data and the acceleration of CPI inflation spoke for a rate increase.
- The Monetary Policy Committee (MPC) noted that “the Omicron variant is likely to weigh on near-term activity”. But it had “promised” at the November meeting to raise rates if the economy evolved as it expected and “these conditions had been met”.
- Moreover, the MPC repeated the phrase that a “modest tightening of monetary policy is likely to be necessary”. The consensus forecast (including us) expects two more steps next year, the market sees three to 1%.