England, the first G7 country to raise rates

England became yesterday, December 16, the first member of the G7 to start raising its benchmark interest rate after the Covid-19 pandemic.

The Bank of England (BoE) raised its rate from 0.1 percent to 0.25 percent on Thursday.

This is the first increase in more than three years. The rate had remained at 0.1% since March 19, 2020.

The last time the agency raised its rate was on August 6, 2018 when it went from 0.5 to 0.75 percent.

BoE Governor Andrew Bailey said he needed to address the strong inflationary pressures building up in the economy.

Inflation is now at 5.1%, the highest level in a decade, and is expected to accelerate further early next year.

“In the short term, that is, in the next two or three months, we think it can reach around 6%,” he told the BBC.

An increase in wholesale gasoline prices continues to be a major factor driving inflation and that continues to drive up national energy bills.

Ómicron injects pressure

At first glance, the central bank’s moves appeared to show a disconnect from the government’s warnings about the spread of the Omicron variant, which could lead to further restrictions.

“By the time today’s rate hike has a notable impact on the inflation outlook, the possible short-term impact on Ómicron’s economic activity (…) will have gone down in history,” Holger told the AP news agency. Schmieding, chief economist at Berenberg Bank.

Economists consulted said that the agency’s decision exposed the concern that exists about the trajectory of inflation, even before knowing the full impact derived from the new strain of coronavirus.

“Rather than closing the hatches and waiting for the latest Covid storm to subside, they are taking action now to prevent an even sharper escalation in prices,” said Susannah Streeter, senior investment and markets analyst at broker Hargreaves. Lansdown.