A woman wearing a face mask crosses the road outside the Bank of England at what would normally be the morning rush hour in the City of London on March 17, 2020. The UK’s financial district is unusually quiet after demand government people to refrain from all travel and activities except essentials yesterday.

Jonathan Perugia

LONDON – The Bank of England is carefully assessing the risks posed by the omicron Covid-19 variant in light of its surprise decision to raise interest rates, its chief economist Huw Pill told CNBC on Friday.

Faced with persistent inflationary pressures and a tightening labor market, the UK central bank raised its main interest rate to 0.25% from its historic low of 0.1%, defying expectations market that it would wait until the new year before relaunching its upward cycle.

Inflation hit 5.1% in the 12 months leading up to November, the steepest annual slope in 10 years and well above the Bank’s 2% target. The BOE now expects consumer price increases to peak at 6% per year in April 2022. Meanwhile, the UK economy created 257,000 jobs in November despite vacancies remaining high, indicating a further compression of the labor supply.

“Omicron has introduced a new level of uncertainty into our assessment of the economy as a whole, the outlook for inflation and the development of the labor market,” Pill told CNBC’s “Street Signs Europe”.

Pill – who is also the bank’s executive director for monetary analysis and research – said the bank must now proceed with caution and assess whether omicron is going to cause a reversal in the dynamics of the UK economy over the past six years. months and beyond, including the tightening labor market.

“I think it’s also important to keep in mind that this omicron risk is probably double-sided, at least as reflected in our main focus, our ambition in terms of inflation prospects at medium term, “he said. .

“We have homework to do to see how the omicron variant affects both public health and UK economic developments, but also to interpret with caution how these things influence what must be the thing we are focusing on, and the thing we can best influence, which is the outlook for inflation over the medium term. “

Omicron is spreading at an alarming rate in the UK, which saw nearly 90,000 new cases of Covid-19 on Thursday and recently implemented new social restrictions in a bid to contain the variant.

Despite the new threat, the Monetary Policy Committee has opted for cautious inflation rather than optionality on omicron results, and will now have to keep its finger on the wind to assess whether to accelerate its trading cycle. rise or maintain the relatively losing policy.

“While the Bank still expects inflation to return to its medium-term target, the stock is now maximizing its chances of fulfilling its mandate in two or three years,” said Jim Reid, global head of Fundamental credit strategy and thematic research at Deutsche. Bank, in a note.

“Indeed, the risks of inflation are increasing. Salary premiums are already increasing. Inflation expectations are also moving slowly. And the risk of further disruptions to global supply chains is increasing, with Omicron’s spread threatening to temporarily derail the global recovery. “


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