UK economy not ready for rate rise

FOR once, the Bank of England followed through on its signal to markets, raising interest rates on Nov 2 for the first time in a decade to 0.5 per cent from a record-low 0.25 per cent. It had little choice but to do so. Since becoming governor four years ago, Mark Carney had set the scene for interest rates to rise multiple times. Until Thursday, he had delivered nothing but a rate cut after last year's referendum to leave the European Union, earning him a reputation as an "unreliable boyfriend".

The bank's concerted effort since the summer to indicate that markets should expect a rate rise meant the announcement was broadly priced in. Overnight index swaps on the eve of the announcement had been pricing in around a 90 per cent probability of a move - far higher than before any meeting during Mr Carney's tenure.

So priced-in was the move that not only did sterling not jump on the news, it fell instead nearly as much as it did in the immediate aftermath of the Brexit referendum. This was because of the dovish tone of the longer-term outlook, defying the standard textbook relationship between rates and the value of the currency. From a credibility perspective, therefore, Thursday's move was a success.