7th August 2017

Carney Continues to Wait and See

This week the most interesting news was nothing. Specifically, the nothing done by the Monetary Policy Committee, which opted to leave interest rates at its current level.

While this was broadly predictable, inflation has already started to tick down while a handful of economic indicators also appear to be slowing, it is none the less significant. This week was probably the best chance for a rate rise in the foreseeable future, if headline inflation of nearly three per cent isn’t enough for the bank to pull the trigger we have a useful marker for where the bar is, and its clearly quite high.

The caution at the Bank is welcome. The risks to getting this decision wrong are very one sided. If they’re wrong to delay and inflation continues to rise, then hiking rates in a couple of months’ time is still an option. However, increase rates too soon and you risk stalling the economy, even triggering a recession. Do this and there is nothing left in the tool kit to put things right again. Higher short term inflation seems inevitable as this calculation is unlikely to change for a while.

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