Bank of England faces calls to raise interest rates at meeting TODAY

Bank of England faces demands to raise interest rates at meeting TODAY with warnings that inflation could top 6 PER CENT by the spring – three times its target

  • Bank of England is announcing the latest decision on interest rate levels today
  • Pressure on the Bank to increase after inflation figures came in at 5.1 per cent
  • Analysts warn the CPI rate could peak at 6 per cent in spring triple Bank target  

The Bank of England is facing a critical decision on whether to raise interest rates today amid fears that inflation is set to top 6 per cent.

Pressure has been heaped on governor Andrew Bailey and top officials to act after headline CPI came in at 5.1 per cent yesterday – way above expectations and the highest for a decade.

The Bank has predicted that price rises would peak at around 5 per cent in the spring, but analysts are now warning it could reach triple the 2 per cent target by that point.

Many economists are urging the Monetary Policy Committee to start increasing interest rates to help prevent an inflationary spiral, although others say they wait until the impact of the Omicron strain is clearer. The decision is due to be announced at noon.

The International Monetary Fund warned earlier this week that the Bank should not put off efforts to curb the spike in costs too long. 

Pressure has been heaped on governor Andrew Bailey and top officials to act after headline CPI came in at 5.1 per cent yesterday – way above expectations and the highest for a decade

CPI inflation figures revealed yesterday were significantly above expectations  

The base rate has been 0.1 per cent since the first pandemic lockdown in March last year.

Rising prices are piling pressure on the Bank to raise rates – hitting borrowers – but a hike could derail the UK’s fragile economic recovery from Covid. 

The Bank usually raises the base rate when inflation jumps over the 2 per cent target. Higher rates prompt families and firms to save rather than spend, helping to keep a lid on prices.

But with fears over the Omicron Covid variant keeping workers and Christmas revellers at home, economists on the Bank’s rate-setting Monetary Policy Committee are worried a hike could halt the recovery.

Experts were divided over how the Bank should proceed.

Julian Jessop, of the Institute of Economic Affairs think-tank, said the Bank’s ‘credibility is on the line if they fail to act now to keep inflation expectations in check’. 

He added: ‘Omicron seems more likely to add to inflation pressures by further disrupting supply chains than to reduce them by dampening demand.’

But Yael Selfin, chief economist at accountancy firm KPMG, said: ‘We expect the Bank of England to adopt a wait-and-see approach at this week’s meeting, allowing for more time to assess the net impact of the Omicron variant on growth and inflation.’

Ms Selfin suggested that inflation will rise again in December, and peak at over 6 per cent in the spring.

‘The latest setback in the evolution of the pandemic could put additional strain on supply chains, with inflation expected to peak at just over 6 per cent in April. Continued supply bottlenecks in the Christmas period, coupled with worsening supplier delivery times, could push inflation to 5.6 per cent in December,’ she said. 

Transport added the most to November’s inflation rate, as the price of fuel and second-hand cars shot up, according to the Office for National Statistics. The average cost of petrol hit an all-time high of 145.8p per litre in November, up from 112.6p a year earlier.

Used cars have been climbing in price because of a shortage of electronic chips used in new vehicles, which has limited their supply.

Games, toys and hobby items also rose as families began their Christmas shopping, and inflation in food, clothing and household goods prices was also higher than normal.

The figures from the ONS came after the IMF forecast that UK inflation would hit 5.5 per cent in spring, the highest since the early 1990s.

The rise would leave many struggling to stretch their budgets, and the IMF warned the Bank of England against ‘inaction’.

Kevin Brown, savings specialist at life insurer Scottish Friendly, said: ‘The cost of living is continuing to rise sharply and faster than the Bank of England, and most economists, predicted.

‘Inflation in the UK is on track to reach its highest level for 30 years in 2022 but the looming threat of Omicron means it is unlikely that the Bank will choose to risk destabilising the economy or household finances further by raising interest rates this week. By the time the next opportunity comes round to raise rates in February, the Bank could be facing an uphill battle to bring inflation in check.

‘The Bank’s lack of action means households in Britain are taking measures into their own hands to mitigate the rising cost of living.’

Mr Brown said Scottish Friendly’s research indicated that more than one in three families ‘are nervous they will be unable to pay for essentials this winter’.

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