When will the Bank move on rates?

Mark Carney Image copyright Getty Images

Once you've resigned from a job, the temptation may be to wind down and let normal duties take a back seat.

Is the same true for the Bank of England's governor? Inflation is set to rise above target over the next few years, growth is looking more robust, and yet the Monetary Policy Committee (MPC) didn't order the rate rise that might have been expected.

But that doesn't mean that Mark Carney or his colleagues are asleep at the wheel. Instead, look to the fog of Brexit, as the governor likes to call it. These are highly unorthodox and uncertain times.

Growth actually isn't that different to what was expected a year ago. But the quality, or make up, of that growth is.

Consumer spending has been far more resilient than expected, while stockpiling of raw materials and finished goods has caused a buzz of activity in the past few months. The Bank's own survey found that half of companies had taken such precautions.

Meanwhile, growth in other major economies has stabilised.

UK growth in the first quarter is likely to have been 0.5%, double what the Bank expected just three months ago. But the prolonged uncertainty has hit business investment sharply (and is expected to do so for some time yet) and made home buyers more nervous.

The Bank is expecting property prices to have fallen by 1.25% over the course of this year. And while employment is at an all-time high, the Bank reckons it could have been up to 2% higher if it were not for Brexit uncertainty.

'Unenviable gift'

Meanwhile, the Bank admits that faster wage growth is ramping up demand, putting pressure on inflation.

But the Bank is reluctant to move until there is further clarity, not least about the path of Brexit. For as it highlights again, the movement in rates then could be "in either direction" depending on the outcome, the impact on the economy, and whether it opted to support growth or inflation.

If all goes smoothly, then the Bank will probably turn its firepower on inflation, and start raising rates "at a gradual pace and to a limited extent", especially if there's a bounce in investment and hiring.

At the moment, the MPC reckons "the cost of waiting for further information is relatively low". But that, given the degree of inflationary pressures it's forecasting, is quite a gamble.

As it is, Mark Carney admits rates will rise faster than the one hike per year or so the markets are assuming. But if the Bank is too slow off the mark, then rates might have to ultimately rise even faster and by more than originally envisaged to curb inflation

That would be an unenviable parting gift from Mr Carney to his successor.

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