Bank of England says omicron poses ‘two-sided’ risk to inflation outlook

A woman wearing a protective mask crosses the street in front of the Bank of England during the morning rush hour in the City of London on March 17, 2020. The UK’s financial district is unusually quiet after the government mandated asked everyone to refuse all travel and essential activities yesterday.

Jonathan Perugia

LONDON – Events Bank of England is carefully assessing the risks posed by the Covid-19 omicron variant ahead of its surprise rate hike, Chief Economist Huw Pill told CNBC on Friday.

The UK central bank raises key interest rate to 0.25% from a historic low of 0.1% in the face of persistent inflationary pressures and a tightening labor market, defying market expectations to wait into the new year before starting a bull cycle.

Inflation hit 5.1% in the 12 months to November, the strongest annual tilt in 10 years and well above the Bank’s 2% target. The BOE now expects consumer price growth to peak at 6% year-on-year in April 2022. Meanwhile, the UK economy added 257,000 jobs in November although vacancies remained open. high level, indicating that labor supply will be tightened further.

“Omicron has introduced a new level of uncertainty into our assessment of the overall economy, inflation outlook and labor market developments,” Pill told CNBC on “Street Signs Europe.”

Pill – who is also the Bank’s chief executive officer for currency research and analysis – said the Bank now needs to proceed with caution and assess whether the omicron would lead to a reversal of some momentum in the economy. economy over the past six months and beyond, especially the tightening of the labor market.

“I think it’s important to note that the risk associated with omicrons is perhaps twofold, at least as it is reflected in our core target, our ambition regarding the inflation outlook in medium term,” he said.

“We have some homework to do in looking at how the omicron variation impacts public health and development in the UK economy, but it’s also prudent to interpret those as well. How that affects what we focus on and what we can best influence, which is the medium-term inflation outlook.”

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

Despite the new threat, the Monetary Policy Committee has opted for cautious inflation over the omicron outcome option, and will now have to keep a finger in the wind to gauge whether to accelerate the cycle hiking period or keep a relatively loss-making policy.

“While the Bank still expects inflation to return to its target in the medium term, action is now maxim,” said Jim Reid, global head of credit strategy and topical research at Deutsche. maximize their chances of achieving their mission over a two- to three-year period”. Bank, in a note.

“Inflationary risks, indeed, are growing. Pay bonuses have increased. Inflation expectations are also slowly moving. And the risk of further disruptions to global supply chains is increasing, with the contagion. The spread of Omicron threatens to temporarily derail the global recovery”. “ Bank of England says omicron poses ‘two-sided’ risk to inflation outlook


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