Better Late Than Never for the Bank of England
Attention now turns to a possible follow-up rate increase in February
The stimulus era is formally over. The Bank of England’s surprise 15 basis point interest-rate increase on Thursday finally moved the agenda from pandemic recovery onto fighting inflation. The pound rose nearly 1% versus the dollar and the entire gilt yield curve rose about eight basis points.
The conditions were just too strong for the monetary policy committee to ignore any longer: Inflation is at over 5%, a decade-high, and the labor market is red hot. That was enough to overcome worries over the spread of the omicron variant. The Federal Reserve's aggressive action on Wednesday — with plans to taper quantitative easing more swiftly and guidance for higher interest rates — helped blaze a trail that the BOE has been forced to follow.