It was a tale of two central bank meetings today as both the Bank of England (BOE) and the European Central Bank (ECB) announced their monetary policy decisions. In somewhat of a surprise the BOE Monetary Policy Committee voted by a majority of 8-1 to increase the base rate from 0.1% to 0.25%. The pound jumped by as much as 0.8% on the news.
Most analysts had expected the bank to leave interest rates unchanged, with the potential wider economic impacts from the Omicron variant yet unknown. However, it appears that the bank now believes that inflation is much more of a medium-term problem rather than being a transitory factor with the consumer price index (CPI) expected to top 6% in the coming months, triple the BOE’s target.
As expected, the ECB maintained the interest rate at 0.00%, however the asset purchase program (APP) was altered to be doubled for the next half year to €40 billion euros a month, to smooth the exit from pandemic stimulus, which is due to end in March 2022. It appears that the ECB has taken a more relaxed approach to the current inflationary problem and a survey by IHS Markit has suggested German inflation may have already peaked.
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