The Bank of England (BoE) has today announced that interest rates are set to rise 15 basis points, from 0.1% to 0.25% – the first increase since August 2018.
Last March, interest rates were twice cut to reach a record low of 0.1% in response to the debilitating economic effect of the coronavirus pandemic.
In recent months, however, the rising of interest rates has been called for by prominent economists weighing up rising living costs and the effect of a 5.1% inflation surge in November 2021.
Today, members of the BoE’s Monetary Policy Committee (MPC) voted 8-1 to enact the increase.
The increase comes in spite of fears that the new Omicron variant of the virus could lead to the slowing down of the UK economy as a result of people spending less.
Following the announcement, the pound rallied sharply, rising to 0.63% against the dollar.
Driven by the Bank raising their inflation forecasts to reflect rising living costs, the decision to increase interest rates surprised many, with speculation initially suggesting that the BoE were going to hold off making a decision on the matter until February 2022.
Nevertheless, with current figures demonstrating that the cost of living continues to climb, pressure upon the Bank has been mounting. It appears that, caught between controlling inflation and ensuring financial stability, the Bank of England have opted for the former.
The Central Bank, on the other hand, are expected to retain the 0.1% interest rate.
If you are unsure of how the 0.25% interest rate will affect you and your business and would appreciate some guidance, get in touch with our team today.