Bank of England surprises investors with interest rate hike
The Bank of England is giving investors whiplash. Last month, it didn’t hike rates when it had been widely expected to — and on Thursday it raised rates despite not being expected to.
Why it matters: Like the Federal Reserve’s hawkish pivot on Wednesday, the U.K. central bank's move shows that doing battle against inflation is priority number one.
- With cases of the Omicron variant surging and U.K. businesses like theaters and shops self-closing, bank watchers had scaled back their expectations for liftoff.
The big picture: The BoE is officially the first major central bank to hike rates from rock-bottom pandemic-era levels.
- Its decision, despite the emerging Omicron concerns, shows that "the BoE worries more about the risks of a 6% inflation peak feeding into wage pressures than it does about the likely large hit to consumer spending next year or Omicron risks,” wrote BofA analysts in a research note.
Worth noting: Hours before the BoE announced its decision, U.K. PMI data hit that showed weakening economic activity so far this month.
- "Today's PMI fall may presage a growth hit that could raise unemployment," BofA analysts wrote. "Higher inflation will squeeze real incomes more, crimping demand growth. January could see growth worries rise as Omicron spreads elsewhere."
The bottom line: The decision leaves room for the bank to take it slow. The uplift was just 0.15%, and the bank’s statement indicates it may not continue hikes at its next few meetings.