16 December 2021

Bank Rate increased to 0.25% as inflation surges to 5.1%

The Bank of England's Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 15 December 2021, the MPC voted by a majority of 8-1 to increase Bank Rate by 0.15 percentage points, to 0.25%. The Committee voted unanimously for the Bank of England to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £20 billion. The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £875 billion, and so the total target stock of asset purchases at £895 billion.

Read the full Monetary Policy Summary and the minutes of the Monetary Policy Committee meeting here.

The Bank has also published the Agents' summary of business conditions - Q4 2021:

• Activity continued to recover over the past three months, although output growth is being increasingly constrained by shortages of materials, components and labour
• Recruitment difficulties remained acute in many sectors even after the furlough scheme ended; pay settlements continued to rise
• Growing reports of rising costs being passed through to prices; further upward pressure from higher pay and energy costs expected in 2022

Access the full Agents' summary on the Bank of England's website here.

The action from the Bank of England has come somewhat as a surprise to many, following the Bank's inactivity in November (when a rate increase was more widely expected) and follows closely from yesterday's news that inflation (CPI) surged to 5.1% in the 12 months to November, up from 4.2% in October.

The Consumer Prices Index including owner occupiers' housing costs (CPIH) rose by 4.6% in the 12 months to November 2021, up from 3.8% in the 12 months to October.

Consumer Prices Index (CPI)
The CPI is a measure of consumer price inflation produced to international standards and in line with European regulations. The CPI is the inflation measure used in the government's target for inflation.

Consumer Prices Index including owner occupiers' housing costs (CPIH)
CPIH is the most comprehensive measure of inflation. It extends the Consumer Prices Index (CPI) to include a measure of the costs associated with owning, maintaining and living in one's own home, known as owner occupiers' housing costs (OOH), along with Council Tax. Both are significant expenses for many households and are not included in the CPI.

Read the full consumer price inflation release from the Office for National Statistics on their website here.