ALEX BRUMMER: A hammer blow for households — and it won’t even work

Britain is deeply concerned about the potential impact of the Omicron version on the economy and business. 

So the Bank of England’s shock decision yesterday to go it alone and raise interest rates is truly baffling. 

It could be a major blow to the economy, which is what I fear. It is the responsibility of both the Bank and Government to protect the economy and jobs in an emergency, like we saw last year with the Covid crises. 

However, the Bank did the exact opposite. The history of the Bank has shown that raising rates unilaterally or unexpectedly can lead to devastating consequences. 

Andrew Bailey is the Governor of the Bank of England and Chair of the Monetary Policy Committee, Financial Policy Committee and the Prudential Regulation Authority

Andrew Bailey, the Governor of Bank of England is also the Chair of the Monetary Policy Committee as well as the Financial Policy Committee. He has been the Prudential Regulation Authority’s Chairman since 2005.

During the financial crisis in 2008, the European Central Bank chose to raise rates – ostensibly to avert a cost-of-living crisis across the EU – without consulting America’s Federal Reserve or other major players. 

This decision caused a severe slump in Eurozone economies and a legacy that saw some EU nations suffer from unemployment ever since. 

Admittedly, the Bank of England’s new rate rise comes from the lowest level in more than 300 years. 

Ruth Sunderland, my colleague writes that the majority of homeowners have fixed-rate mortgages and this is unlikely to cause a significant increase in the price of these loans. However, interest rates can be a tool and not a weapon. 

Hiking them will do nothing to end the destructive volatility in global energy costs or the supply bottlenecks around the world – which led to higher prices – that are being caused by the unwinding of Covid restrictions. 

Next year, inflation is already set to leap to 6 per cent – triple the Bank’s target rate. 

It will not be possible to reduce petrol prices by more than double the Bank Rate, electric prices (29% higher), and natural gas (25%) 

It is certain that inflation will be addressed in the spring, if the goal is not to kill the economy. However, this was the wrong move at the wrong time.

RUTH SUNDERLAND – A rise to exorcise inflation’s demon… if it hadn’t come sooner 

Keep calm everyone. Everyone wants interest rates to go up. But Governor Bailey did the right thing. 

Many were amazed by yesterday’s decision, but in my view he should have acted earlier. 

Failure to address the rising inflation issue would be considered a failure of duty. 

The Bank’s primary mission has been controlling inflation over the past thirty years because of its devastating social and economic effects. 

If Bailey had not raised rates, he would have thrown his credibility and the Bank’s to the dogs. The people who argue against even a small rise in interest rates must get their act together. 

It seems that they have lost sight of the fact that rates were cut by the Bank in two emergencies when the virus hit in March 2013. This brought them close to zero. 

Now, rates have risen to 0.25 per cent. This is still a very low rate by historical standards. It also falls significantly below the 0.75 percentage base rate which stood just before the pandemic. 

This is what I paid for my first house in 1990. It’s worth remembering that around three quarters of borrowers have fixed-rate home loans, so will suffer no immediate pain. 

The Daily Mail’s Alex Brummer points out correctly the Bank has no control over some elements of inflation, such as energy bills. 

Threadneedle Street is sending a message to inflationists by raising the rates. For the exorcism of that demon, it is worth paying a modest increase. 

We hope that this modest increase will prevent the need to make more difficult decisions in the future. 

It is, however, not permanent. If inflation does turn out to be only temporary – or the economy weaker than thought – it can always be reversed. So let’s get some perspective.