LONDON — The Bank of EnglandCNBC’s Chief Economist Huw Pil said that the company is carefully reviewing the risk posed by Covid-19 in the wake of the sudden decision to increase interest rates.

The U.K.’s central bank raised its main interest rate to 0.25%An inflationary pressure and tightening labor market have led to the historic 0.1% drop. Market expectations were that the market would wait until next year before it kick-started its hike.

Inflation hit 5.1% in the 12 months to NovemberThis is the Bank’s highest annual increase in 10 years, and it was well over the Bank’s target of 2%. Now, the BOE expects that consumer price hikes to reach a peak of 6% per year in April 2022. In the meantime, 257,000 British jobs were added in November, with vacancies still high. This indicates that there is a new squeeze on labor supply.

Pill said that Omicron had introduced “a new level of uncertainty” into the economic outlook, our evaluation of the economy in general and labor market developments. Pill spoke to CNBC’s “Street Signs Europe.”

Pill — who also serves as the Bank’s executive director for monetary analysis and research — said the Bank now needs to proceed cautiously and assess whether omicron is going to lead to some reversal of the dynamics in the British economy over the past six months and beyond, particularly the tightening of the labor market.

He stated that “It is important that you remember that the omicron-related risks are likely two-sided” and that it was reflected in the core objective of our aim, which is our ambition for the inflation outlook over medium term.”

While we have plenty of work ahead, we need to see how the omicron variation impacts public health and developments in U.K. economic development. We also need to interpret how that influences what must be our focus and the best thing we can influence: the medium term inflation outlook.

Omicron is spreading at an alarming rate in the U.K.On Thursday, there were almost 90,000 Covid-19 new cases. The municipality also recently implemented additional social restrictions as a way to control the variant.

The Monetary Policy Committee chose to be prudent on inflation rather than optionality on outcomes of omicrons. It will have to keep its fingers on the ground to decide whether it should speed up or slow down policy.

In a note, Jim Reid, Global Head of Fundamental Credit Strategy at Deutsche Bank said that while the Bank expects inflation will return to the target over the medium-term, they need to take immediate action to maximize their chance of fulfilling their mandate within two to three years.

“Indeed inflation risks are rising. Already, pay awards are increasing. Slowly, inflation expectations are moving as well. Omicron is spreading rapidly, threatening to disrupt the global recovery and causing further disruptions to supply chain.