Omicron fears risk new inflation spike, warns Bank rate-setter

Omicron is at risk of sparking a further rise in inflation if the new Covid variant keeps Britons indoors and closes factories overseas, a Bank of England policymaker has warned.

Omicron fears risk new inflation spike, warns Bank rate-setter
© Wang Ying/Xinhua News Agency Catherine Mann is a member of the Bank of England’s Monetary Policy Committee

Catherine Mann, who sets interest rates on the Monetary Policy Committee, said that omicron will trigger a jump in demand for already scarce household goods should consumers decide not to go out to avoid being infected.

Another key risk is that new outbreaks will shut ports and factories in China, hitting the supply of goods and pushing up prices, she said.

Speaking at an event organised by Barclays, Ms Mann said: “The zero Covid strategy is draconian in the sense that if you have any cases you are going to shut down ports, you are going to shut down production facilities, so omicron is a key question mark there – under a zero Covid strategy, there are these potential for additional disruptions to the supply chains.

“As soon as you have a shock in a supply chain, you then have a bullwhip effect which through the supply chain accentuates the initial shock. There is a concern going forward. We are keeping an eye on that.”

Ms Mann suggested that behaviour is likely to follow the pattern set in earlier waves, where spending on services business such as pubs and restaurants dropped and customers bought consumer electronics such as televisions to keep themselves entertained.

This would reverse a shift towards more socialising which the Bank had hoped would bring inflation down.

Ms Mann said: “We expected the rotation away from goods to be an ingredient in this moderation of the goods price inflation we see today.

“So if omicron puts us back, holed up in our houses, some of the underpinnings of the moderation in goods pricing pressure, we may not be seeing that.”

Inflation is already running at 4.2pc, more than double the Bank of England’s 2pc target, and is expected to rise to 5pc or more at its peak next year.

Despite the potential for another increase, Ms Mann also indicated that the new variant may push back any rise in interest rates.

She said: “There’s still a lot of information to come in, especially with regard to omicron, so it is premature to even talk about timing, much less how much [rates could rise by].”

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