The Bank of England’s Monetary Policy Committee (MPC) has set monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment.
At its meeting ending on 15 December 2021, the MPC voted by a majority of 8-1 to increase Bank Rate by 0.15 percentage points, to 0.25%. The Committee voted unanimously for the Bank of England to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £20 billion.
The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £875 billion, and so the total target stock of asset purchases at £895 billion.
The pound rose following the Bank of England’s surprise interest rate decision.
Jay Mawji, Managing Director of the global liquidity provider IX Prime said, “In a decision seemingly taken out of the blue, the Bank of England has lit a blue touchpaper under the Pound.
“With the Omicron variant tearing through the British population and parts of the UK economy plunged back into semi-lockdown, many marketwatchers had convinced themselves in recent days that the Bank would once again delay its plan to increase interest rates.
“So much so that expectations for today’s decision turned 180 degrees between the start and the middle of December – from a nailed on rate rise to an almost certain rate hold.
“For the Bank’s ratesetting committee to have voted so convincingly – by 8 to 1 – to press ahead with a significant rate rise blew that consensus out of the water and has sent sterling soaring.
“Earlier Bank predictions talked about interest rates climbing steadily during 2022, hitting 1% by this time next year.
“While the Bank reserves the right to slow the pace of the rate rises if the current wave of Covid-19 infections and restrictions hammer economic growth, today’s decision is a big statement of intent.
“With consumer inflation at 5.1%, a 10-year high and two and half times greater than the Bank’s target, it is acting decisively to get inflation under control. For months the Bank has been hinting that rate rises were coming, and despite the Omicron fears, it has clearly concluded that it is now or never.
“This is turbocharging sterling against other major currencies as international investors start piling into the Pound as a safe and interest-paying place to park large chunks of capital.”