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Bank of England raises interest rates to 0.25%

In response to surging inflation, The Bank of England has increased the base rate of interest to 0.25%.

The decision to raise the interest rate was taken by the Bank’s Monetary Policy Committee. The rate has been increased from its previous level of 0.1% and this is the first rise since August 2018.

The increases comes after a surge in inflation to 5.1% - as measured by the Consumer Prices Index - in large part due to rapidly rising energy costs.

Inflation is projected to peak in April 2022 at around 6% - three times the Bank’s official target of 2%.

The interest rate increase was a surprise to many experts, who had been expecting the Bank to hold fire on a rate rise due to the uncertainty still surrounding the Omicron variant of Covid-19.

However, the Bank of England stated that, although Omicron is likely to have an impact on the economy in the short-term, the impact it will have in the medium term is “unclear at this stage”.

Suren Thiru, Head of Economics at the British Chambers of Commerce, said:

"While policymakers are facing a tricky trade-off between surging inflation and a stalling recovery, with the current inflationary spike mostly driven by global factors, higher interest rates will do little to curb further increases in inflation.

"Without real improvement to the situation supply chains are currently facing, rising prices will continue to be an issue even with monetary policy responses."

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To discuss the impact that the interest rate rise may have on your finances, give us a call on 01483 205890.

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