Could Omicron Impact BoE’s Rate Hike Intention?

The Omicron variant would not discourage the Monetary Policy Committee from hiking rates. The BoE needs flexibility to deal with unforeseen events after Boris Johnson had announced the reintroduction of mask-wearing and travel restrictions.

A rate hike will do nothing to counterbalance the pressure the new variant will place on supply chains and prices.

It is more likely, however, to weigh on demand. If the variant brings with it harsher restrictions in the new year, the BoE could also be forced to backpedal and cut rates again. That would further undermine the MPC’s credibility.

Then again the British will be struggling to understand the rationale for a hike in the first place.

The BoE’s new chief economist Huw Pill has suggested that the Omicron variant would not deter the Monetary Policy Committee from hiking rates, anticipated mid-December.

The Bank of England chief economist on Friday said the conditions now existed for him to vote for higher interest rates.