Potential BoE rate rise could depend on the Omicron variant

The potential for an interest rate rise in December by the Bank of England is now unclear as the Omicron variant of coronavirus threatens to pull back the UK economy.

At the BoE’s meeting this month, only two policymakers voted to raise rates, one of whom was Michael Saunders, who said he would like more time before making the decision this month.

The central bank’s decision not to raise rates in November came as a shock to markets, as the move had been widely expected in an effort to combat inflation, although a hike in December was specifically not ruled out.

Governor Andrew Bailey replied: “from now onward”, when asked when an interest rate rise is possible.

However, Saunders appeared to contradict this view in a speech delivered on Sunday:

"At present, given the new Omicron Covid variant has only been detected quite recently, there could be particular advantages in waiting to see more evidence on its possible effects on public health outcomes and hence on the economy."

The issue is that the Omicron variant might hamper the UK economy, which could in turn raise the cost of living, at a time when people are already being stretched thin.

"This could require a more abrupt and painful policy tightening later," Mr Saunders said. "For me, the balance between these considerations is likely to be a key factor at the December meeting."

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