Bank of England official says Omicron variant could boost inflation

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The emergence of the Omicron variant may hurt demand and confidence in the U.K. and policy makers need more information about the strain and a host of other data before they can decide whether to act, according to Catherine Mann, Bank of England policy maker.

While voted with the majority to keep interest rates on hold at this month's meeting, Mann said she was paying attention to a number of variables including the outlook for the new variant of Covid 19, business pricing strategy and supply-chain issues as she considers her policy stance. She cautioned that the new strain could boost inflation by delaying spending on services.

There is still a lot of information to come in, particularly with regard to omicron, so it is premature to talk about timing, much less how much, when thinking about rate hikes, Mann told a web audience at an event hosted by Barclays Plc.

Financial markets are worried that the omicron will prevent the BOE from hiking interest rates in December, and have cut the odds of such a move to around 50%, from a near certainty earlier this month.

Mann said at an event hosted by Barclays:

None of the U.K. economic growth forecasts in the BOE remain below trend throughout the forecast horizon when the figures take into account market interest rates and policy makers are concerned about that sort of scarring. None Asia's zero-Covid strategy risks further damage to supply chains, which will result in upward pressure on inflation.

None of the Labor markets are very tight, and policy makers are concerned that higher wage demands may feed into a more general increase in inflation.

In the months ahead, none of the inflation is likely to moderate, and applying the full futures curve to estimates for energy prices would shave 50 basis points off the figure in the coming years.

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