The Bank of England's Monetary Policy Committee has voted to increase interest rates from 0.1% to 0.25%. Many had expected the rate to be unchanged due to the emergence of the Omicron variant of Covid and the rapidly rising number of cases which has already seen increased measures being taken although not a full lockdown. The problem for the bank is the increasing inflationary pressures with the rise in the CPI index in November hitting 5.1% an increase from 4.6% in October. Inflation is now expected to peak at 6% in April 2022, well ahead of the Bank of England's target of 2% and a rate not seen for many years. Earlier in the week the International Monetary Fund effectively warned the bank against inaction given rising inflation.
This rise in inflation and rise in interest rates will not be welcomed by many as it will add strain onto family budgets at a time of year when the festive spending is already adding a strain. It remains to b e seen if wages will also rise with the danger that this will further fuel the inflationary pressures.
For those with cash deposits, often considered safe investments, this increase in interest rates in unlikely to. result in much of a rise, if any, in the interest paid on these deposits. With inflation rising these deposits will increasingly be losing their real value. It may be time to consider other investments that are more likely to retain their value in a rising inflationary environment so get in touch if you would like to review your options
Omicron not seen as a serious threat to the economy