Bank of England Hikes Rates, GBP Rallies
The Bank of England's Monetary Policy Committee (MPC) increased rates to 0.25% (from 0.1%), by an 8-1 majority, with Ms Tenreyro being the sole dissenter. The Committee voted unanimously to maintain the total target stock of asset purchases at £895 billion. [1]
It is now even more evident that the central bank and its members have communication issues. In November, they had surprised many market participants by opting to not increase rates [2], despite hinting at such. Prior to that decision, BoE's governor Bailey had signaled that the BoE would have to act in the face of rising inflation, while speaking at the G30 36th Annual International Banking Seminar. [3]
Markets were approaching today's meeting with limited expectation given November's surprise, in a backdrop of stricter Covid-19 measures in the UK to contain Omicron and recent dovish remarks by BoE's Mr Saunders.
He is perhaps the most hawkish member of the MPC and had voted against the majority in November, in favor of a rate hike, along with Mr Ramdsen.
Mr Saunders had noted on December 3rd, that "In considering if and when to adjust rates, there is always a case to wait and see more data. At present, given the new Omicron Covid variant has only been detected quite recently, there could be particular advantages in waiting to see more evidence on its possible effects on public health outcomes and hence on the economy", pouring cold water on calls for tightening. [4]
However, interest rate hikes seemed to be back in play, after Wednesday Inflation data. UK Consumer price Index (CPI) jumped 5.1% in November, compared to 4.2% in October. This level was not expected until April 2022 as per the last Monetary policy Report [5] and bank staff now expect inflation to peak 6% in April – 3 times BoE 2% target.
The British Pound jumped in the aftermath of the somewhat unexpected hike, with GBP/USD rallying more than 0.5% at the time of writing.
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Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. With extensive experience in market analysis and a strong foundation in international relations, he brings a unique perspective to financial markets. Nikos emphasizes not only technical analysis but also on fundamentals and the growing influence of geopolitics on financial trends.
As a Senior Financial Editorial Writer, he delivers comprehensive and forward-looking insights across a wide range of asset classes, including equities, commodities, and currencies. His work explores how macroeconomic events, political developments, and global policies impact market dynamics, providing readers with a deeper understanding of both short-term movements and long-term trends.
References
| Retrieved 16 Dec 2021 https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2021/december-2021 | |
| Retrieved 16 Dec 2021 https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2021/november-2021 | |
| Retrieved 16 Dec 2021 https://www.youtube.com/watch | |
| Retrieved 16 Dec 2021 https://www.bankofengland.co.uk/speech/2021/december/michael-saunders-speech-at-a-boe-hosted-event | |
| Retrieved 10 Apr 2026 https://www.bankofengland.co.uk/-/media/boe/files/monetary-policy-report/2021/november/monetary-policy-report-november-2021.pdf |
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