Bank of England will almost certainly raise rates but tone regarding future should be dovish

The UK economy has outperformed the Bank’s expectations but the clouds on the horizon look dark

Bank of England governor Mark Carney: will he don the wings of a dove or those of a hawk? (Getty)

The financial markets will be hit with a minor earthquake if the Bank of England fails to raise interest rates for the first time in more than a decade at the conclusion of its Monetary Policy Committee’s latest meeting.

While minor – and major – geopolitical and economic earthquakes have become disturbingly common of late one would hope – hope – that the Bank won’t choose to join Trump ’n’ Brexit voters by kicking itself, not to mention the City, and a small army of financial punters, hard in a painful place.

The MPC’s members, and especially the Bank’s governor Mark Carney, would be best advised to rent space in the Cabinet War Rooms in which to hide if they do because they will be responsible for adding an extra twist of uncertainty to an already toxic mix. That is something the UK needs about as much as it needs Boris Johnson achieving his heart’s desire by being handed the keys to 10 Downing Street.

What the City, those financial gamblers, and especially UK plc, is really focused on, having taken the first rate rise for more than a decade as a given, is what the governor will have to say about the future, and whether the current consensus view that the MPC will be one and done as regards rate rises is correct.

As such, Mr Carney’s comments will be picked apart and dissected like an unlucky lab rat. The words he utters will be some of the most important of his tenure.

What informs the City’s consensus is that while the economy has performed better than expected in the wake of the self-inflicted wound of Brexit, and considerably better than the Bank itself had expected, the storm clouds on the horizon continue to boil and spit.

Compared to the rest of Europe, Britain once looked like the sprightly colt with a Derby entry in a field of future low-grade handicappers. Brexit might not have caused the sort of shock some had feared – at least not yet – but the nation and its currency have swapped that for a place in the Banana Republic Selling Stakes. And it looks like they will struggle to put up a fight against even that race’s weak line-up.

Consumer confidence is low, and deteriorating. The forward indicators give cause for worry. What growth there is could all too easily be blown away by the gentlest of breezes, and those emanating from Westminster, where the Brexit establishment appears intent on binding the country into a suicide pact, are not gentle.

Chris Beauchamp, from speed betting outfit IG, says a hawkish tone from Mr Carney would come as a big surprise to the firm’s traders, and punters.

The Bank’s view has long been that the inflationary spike sparked by the pound’s free fall, that the expected rise is designed to help correct, won’t last once it has worked its way through the system. The MPC’s members should also have paid due regard to the parlous state of the nation’s personal finances.

According to the Financial Conduct Authority, there are 25m Britons who are barely surviving. Even a quarter point rise in rates may stretch some to breaking point. Then there are the half million or so businesses in a no less parlous state.

The Bank is in a very difficult, if not an invidious, position. As such, caution likely will be its watchword. When Mr Carney makes his statement the smart money is on him donning the wings of a dove rather than those of a hawk.