UK Rate Hike: File Under Fear
Despite the best efforts of Governor Carney, his briefing staff and the Inflation Report drafters, today's policy rate hike still looks manufactured. That helps to explain the subsequent fall in the pound.
For a start, the BoE's own UK economic forecasts are not materially different from three months ago while the forward-looking data point to some approaching growth headwinds which, along with a seemingly sharper pass-through from sterling to prices, are likely to bear down on #inflation faster than the MPC purportedly expect.
None of this is news to the Committee. So what gives? One possibility is that this is all window dressing for the fact that the MPC wants to give itself some room to cut again if #Brexit sails towards the worse-case outcome (no transition, no trade agreement). Such an episode would see household and business spending plans and confidence jolt south.
The MPC just bought the UK economy a little more insurance.