Mark Gilbert is a Bloomberg Gadfly columnist covering asset management. He previously was a Bloomberg View columnist, and prior to that the London bureau chief for Bloomberg News. He is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”

Marcus Ashworth is a Bloomberg Gadfly columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.

The Bank of England is once again threatening to tighten policy. Its words, however, should speak louder than its actions in the coming months.

On Thursday, the minutes of the bank's Monetary Policy Committee meeting this week warned that "some withdrawal of monetary stimulus was likely to be appropriate over the coming months in order to return inflation sustainably to target." Bets on a rate increase at the December meeting soared, putting the likelihood at more than 50 percent.

Great Expectations
The likelihood of a U.K. interest-rate increase by year-end has surged this week
Source: Bloomberg's WIRP function
Note: Thursday's expectations taken 30 minutes after the Bank of England decision was published

Figures earlier this week showed inflation running at 2.9 percent, well above the central bank's 2 percent target. Wage growth, however, undershot economists' expectations, with a 2.1 percent increase in the three months through July. Tightening policy to damp inflation at a time when Britons are already worse off risks exacerbating what Bank of England Governor Mark Carney warned would be a "squeeze" as incomes fail to keep up with price increases.

Talking Tough, Acting Dovish
Carney's comments highlight the Bank of England's policy dilemma
Source: Bloomberg

Much of the acceleration in inflation, however, is stoked by the pound's fall since the June 2016 referendum to leave the European Union. So by talking tough, policy makers can add momentum to a rally that's seen the pound pare its post-Brexit vote losses against the currencies of its major trading partners to less than 13 percent from almost 18 percent at the October lows.

Sterling Alive
The pound jumped in reaction to the more hawkish tone in the Bank of England minutes
Source: Bloomberg
Intraday times are displayed in ET.

The MPC was back at its full complement of nine members, having been down to just seven in June. New member David Ramsden participated for the first time, siding with the majority. Michael Saunders and Ian McCafferty dissented for a third meeting, voting for a 25 basis point increase to 0.5 percent. To swing to a majority of five for a hike, three more members need to change their view.

Jon Cunliffe, deputy governor of central bank, summed up the current interest-rate dilemma as long ago as June 2014. Policy makers, he told The Telegraph newspaper back then, need to be "quite careful, particularly when you're at the zero bound because if you raise rates and the recovery dies out, you haven't got much policy space."

Cash-strapped Brits still aren't seeing the surge in wage growth that the fall in unemployment to a 42-year low suggests they should be enjoying. The Brexit negotiations, meantime, remain fraught with danger. Policy makers should continue to charm the pound higher, but should refrain from pulling the rate-rise trigger while growth stays lackluster and consumer confidence remains fragile at best.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the authors of this story:
Mark Gilbert in London at
Marcus Ashworth in London at

To contact the editor responsible for this story:
Jennifer Ryan at