It took all of five minutes for news of the Bank of England’s first rise in base rate for over a decade to be blamed on Brexit. The Guardian’s live blog, for example, suggested that the rise was ‘to prevent the cost of goods bought in the UK from spiralling further’, following the fall in sterling.
Well no, actually. The explanatory notes from the Monetary Policy Committee (MPC) explain that it voted 7-2 to raise rates because the slack in the UK economy has fallen. With unemployment at a 40 year low, it fears that inflation could run ahead of itself unless dampened by an interest rate rise. The inflationary effects of low sterling, it adds, are falling away, but ‘net trade is bolstered by the strong global expansion and the past depreciation of sterling. Business investment is being affected by uncertainties around Brexit, but it continues to grow at a moderate pace, supported by strong global demand, high rates of profitability, the low cost of capital and limited spare capacity’.
In other words the economy is doing much better than the MPC assumed it would when, in August 2016, it cut rates in half to 0.25
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