Omicron drops ratings on December interest rate hike

MMarkets have lowered bets that the Bank of England will raise interest rates this month, after one of its most hawkish officials said there was “to wait and see” the impact of omicron.

Michael Saunders, an external member of the Monetary Policy Committee, said the recently detected variant could offer a reason to pause.

Speaking at a BoE webinar, he said “there might be particular benefits in waiting to see more evidence on its possible effects on public health outcomes and therefore on the economy.”

However, Mr Saunders – who voted for an interest rate hike at the MPC meeting in November – said “continued delay could also be costly”.

He warned that keeping the cost of borrowing ultra-low could risk exacerbating inflation, which “may require more brutal and painful policy tightening later.”

Traders have cut their bets that the MPC will increase the discount rate to 0.25 pc at its December 16 meeting, following comments from Mr Saunders.

The position in the currency market implies a probability of increase of 33pc, having reached 0.6pc. The pound fell 0.2 pc after the text of his speech was published.

Mr Saunders said it would not “make sense” to give “precise forecasts” on the future development of rates, but added: “if the economy develops in line with the [BoE] Central forecast or my expectations, the direction of travel for the discount rate over the next few quarters is clearly likely to be on the rise. “

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