While the Monetary Policy Committee’s (MPC) decision to increase Bank Rate for the first time in a decade was largely priced into financial markets ahead of the November meeting, the Committee struck a more dovish tone than expected on the future path of Bank Rate, as evidenced by the sharp decline in both the pound and gilt yields.
The MPC was right to soften the potential blow of the first rise in interest rates for a decade by sending markedly dovish signals, particularly when the outlook for the economy is exceptionally uncertain. But there are good reasons to expect that dovishness to fade over time as worries about the impact of higher rates fade and economic conditions improve.
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