The Bank of England left interest rates and QE unchanged but a huge upgrade to growth prospects demonstrates just how wrong it got its forecasts. The Brexit-defying UK economy will expand by 2% this year – up from 1.4% predicted in November.

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Despite the upgrade to growth the market saw it as a bit dovish, largely because inflation is not expected to run away as much as thought.

The Bank increased its expectation for growth in 2017 to 2.0% and now thinks we will see growth of 1.6% in 2018 and 1.7% in 2019. Inflation is likely to overshoot but the Bank is happy to overlook this for a while. Although it says the next move on rates could be in either direction, there appears to be significant hurdles to the Bank hiking interest rates any time soon.

Of note is the comment around monetary policy not being enough to combat the real adjustment required for new trading arrangements. The bank noted that ‘attempting to offset fully the effect of weaker sterling on inflation would be achievable only at the cost of higher unemployment and, in all likelihood, even weaker income growth’. This looks like a major barrier to rates being hiked. However Mark Carney later suggested the BoE's tolerance of inflation overshooting is limited.

A touch of humble pie for the Bank, as it’s been made abundantly clear that the economic Armageddon it expected in the event of Brexit has not materialised. Nor will it  - growth is forecast to slow a little in 2018 and 2019, but hardly the collapse feared. The UK remains the fastest growing G7 economy – not bad for a nation that some think has committed an act of self-mutilation in choosing the leave the EU.

But the Bank remains correct to highlight the downside risks that yet remain. We are now heading out of the EU with no guarantees on trade – WTO tariffs might be the best we get. No one should doubt the importance of what this means, particularly regards the sterling exchange rate.

Meanwhile it flagged the very real danger of rising prices and stalled pay growth to have a significant impact on consumer spending – which is important as it’s been a consumer-led bounce since the EU referendum.

Ahead of the announcement the pound whipsawed before treading water as currency traders positioned for the Bank’s policy decision and economic outlook report.Support around $1.25 looks fairly solid.

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Despite today’s softness, the pound is on a tear this year and has rallied more than 5% since Theresa May made it clear that the UK is leaving the single market when it exits the EU. Markets like certainty and the continued outperformance of the UK economy since Brexit has further fuelled gains for the pound.

Let’s not too carried away - we must see this in context of what the US dollar is doing. The dollar is coming off the back of its worst January in 30 years after slipping against almost all its peers. Donald Trump has been talking down the greenback and that has benefited sterling directly. The dollar index is down around 4% for the year and cable is up about the same amount. Meanwhile the pound is virtually flat against the euro – cable’s rally is very much a dollar story.

The dollar index is now trading around a two-and-a-half month low after no overtly hawkish signal from the Fed last night. Trump’s tax plans could significantly alter this outlook.

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