1st December 2021
At its latest meeting held in mid-December, the BoE’s nine-member Monetary Policy Committee voted by an 8-1 majority to raise Bank Rate to 0.25% from its previous historic low of 0.1%. This was the Bank’s first rate hike in more than three years and resulted in the BoE becoming the world’s first major central bank to raise rates since the onset of the pandemic.
The announcement was made a day after the Office for National Statistics (ONS) released the latest inflation data, which showed the cost of living is now rising at its fastest rate for 10 years. In the 12 months to November, the rate of inflation, as measured by the Consumer Price Index (CPI), surged to 5.1%. This was significantly higher than October’s 4.2% figure and above all forecasts in a Reuters poll of economists.
Speaking after announcing the rate hike, BoE Governor Andrew Bailey said that an outlook for “more persistent inflation pressures” had forced the Bank to act. Mr Bailey said, “We’re concerned about inflation in the medium term and we’re seeing things now that can threaten that. So that’s why we have to act .”
The Governor also revealed that the Bank now expects the CPI inflation rate to peak at around 6% in April, which would be three times above the BoE target figure. Although the rate is then expected to fall back across the second half of 2022, the Bank acknowledged that more “modest tightening of monetary policy” over the three-year forecast period “is likely to be necessary” in order to ensure inflation sustainably returns to its 2% target level.