Hike rates

Bank of England to review Omicron and raise rates this month

thursday 02 december 2021 15:01

With the emergence of the Omicron variant leaving the specter of the coronavirus hanging over the country, it’s fair to say that the UK economy is not out of the woods just yet (Photo by Leon Neal / Getty Images)

The Bank of England will go ahead and hike interest rates for the first three years this month despite fears the Omicron variant could hit the UK economy, City analysts said.

Strong booster uptake and high levels of existing immunity resulting from the successful vaccination program have put the UK economy in a strong position to resist a fourth wave of coronavirus triggered by the new variant, experts at Goldman Sachs predicted .

The emergence of the heavily mutated coronavirus strain last week initially raised concerns about the health of the UK economy due to the likelihood of tight restrictions to curb the spread of the disease.

These pessimistic assessments cast doubt on whether the Bank will hike interest rates at its next meeting on December 16.

However, in Goldman’s baseline, “the UK economy will hold up relatively well in Wave Four, given the high vaccination rate and a successful booster program,” the banking giant said. Wall Street investment.

“As a result, we still believe that a 15 basis point hike by the BoE is more likely than not at the December meeting.”

Bullish valuations from global healthcare leaders emerged this week, downplaying the seriousness of the Omicron, potentially prompting members of the Old Lady’s rate-setting committee to raise rates.

The World Health Organization (WHO) has tempered speculation that the existing crop of Covid-19 vaccines could be wiped out by the new variant by signaling that there is no evidence the new strain reduces their effectiveness.

GlaxoSmithKline also announced today that its Covid-19 antiviral treatment is effective against Omicron.

These optimistic health assessments were echoed by economists this week, who pointed out that the UK economy is in a much better position to operate efficiently even amid the brakes of Covid-19.

A waning impact of the virus on the economy suggests it will be able to stand on its own without ultra-accommodative monetary policy, paving the way for a rate hike.

Even before the variant emerged, the Bank was under intense pressure to raise rates in order to curb soaring inflation.

The old lady stunned markets last month leaving rates unchanged at an all-time high of 0.1 percent, as he expected inflation to hit five percent next spring.

Prices are already 4.2% higher than a year ago, the highest rate of increase in nearly a decade, according to the Office for National Statistics.

Goldman also expects the bank to rise again in May next year, raising rates to 0.75% by the end of 2022.