‘Not a great change’ Bank of England told to do MORE as interest rates hiked

Inflation: Bank of England facing 'tricky dilemma' says Martins

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The Bank’s rate setters voted by a majority of 8-1 to increase the Bank rate by 0.15 percent to 0.25 percent from its previous rock bottom level of 0.1 percent. The move comes as concern grows over soaring inflation which was revealed to have climbed to 5.1 percent this week. In minutes published today the Bank expects inflation to remain around five percent through winter and peak at around six percent in April. Former MPC member Andrew Sentance said the hike was a “small step in the right direction” but cautioned it was “not a great change.”

Speaking to Express.co.uk he warned that the rise was now “too late to head off the surge in inflation we’re currently seeing”, adding that 0.25 percent wouldn’t do much.

Looking to 2022 he suggested a rate increase to between one and two percent would likely be needed in order to keep inflation under control in the long term.

He added that it seemed the Bank was now “trying to get ahead of the curve” having previously been behind it and had a “feeling they’ve been pressured into this.”

This week the International Monetary Fund warned the Bank against what it described as “inaction bias”.

In today’s minutes the Bank said the Committee judged an increase of 0.15 percent was “warranted” at the meeting.

Dan Boardman-Weston, Chief Investment Officer at BRI Wealth Management, commented: “The Bank needed to send a message that they are taking the threat of inflation seriously and leaving rates at the same level in the same week inflation moved over 5% would have been poorly received.”

Expectation of a rate rise had been dampened due to the uncertainty over the impacts of Omicron and weak growth in the economy shown in recent GDP figures.

The Bank said the MPC will continue to review developments including any emerging evidence on the Omicron variant and its impact on the economy.

Andrew Pottie, Senior Portfolio Manager at Titan Asset Management, commented: “This week’s stronger than expected inflation data and the confirmation of an uneventful end to the furlough in the unemployment data gave the Monetary Policy Committee the confidence to act after surprising markets last month with no hike.

“However, the record number of COVID cases and the ominous threat of a lockdown will weigh on growth forecasts going forward.”

The news has caused concern though over the impact on the cost of living, particularly for those with outstanding debts.

Debt charity StepChange warned households now faced a “double whammy” of rising inflation and rising interest.

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The charity warned: “Higher interest rates will push up the cost of borrowing while being unlikely to feed through to relief in the form of lower inflation quickly enough to help struggling households through the challenging winter months.”

The Federation of Small Businesses has also expressed concern on the impact on firms with four in ten reporting “unmanageable” levels of debt.

Chair Mike Cherry said: “More than a million small businesses took out loans during the pandemic, with a significant proportion of them first-time borrowers.

“Many took on debt more than a year ago, on the basis that Covid would be under control by now.”

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