By Dhirendra Tripathi

Investing.com – Sterling rose 0.8% Thursday against the dollar as Bank of England raised interest rates for the first time since the pandemic struck.

As it tries to reduce retail inflation, the U.K. central banks raised its Bank Rate 0.15 percentage point to 0.25%. They also committed to further hikes over the next few months. BoE predicts that GDP growth will slow to 0.5% for the fourth quarter. Inflation on the U.K. benchmark government bond saw yields rise. 

BoE is the first in the G7 to have hiked rates since the pandemic and was prompted by the country’s annual retail inflation hitting 5.1% in November from 3.1% just two months back.   

According to the central bank, staff anticipate inflation staying around 5% for the bulk of winter and peaking at about 6% in April 2022 when the limit on household energy prices will be raised.

BoE indicated that while the Omicron variant will likely weigh on near-term activities, it’s unclear what its effect is on medium term inflationary pressures at this point. A hike therefore was justified at this point.

Britain recorded its highest number of new Covid cases Wednesday, with 78,610 new cases. The number of hospital admissions has not increased as much so far in this wave of Covid, though.

Most central banks are concerned about inflation now. Fed Wednesday made the most clear recognition by announcing that they would stop buying bonds during the pandemic and increase rates three more times starting in 2022. U.S. consumers are experiencing a record 39 year high in consumer prices, which has forced Fed to promise rate increases even if full employment is still not achieved.

Earlier in the day, Norway’s central bank doubled its base rate to 0.5%, its second hike in three months.  It is likely that the Bank of Mexico will increase its key rate by 25 basis points, to 5.25% on Thursday.