Playing conspiracy theories: does the Bank want a recession sooner rather than later?

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The Bank of England has revised its forecasts for the UK:

  • Growth: The UK economy is now expected to grow 2% in 2017, compared with a November forecast of 1.4%. In its final forecasts before the referendum, in May last year, the bank had forecast 2.3% for 2017
  • The economy is expected to grow 1.6% in 2018, compared with 1.5% forecast in November. The forecast for 2019 is 1.7%, versus 1.6% forecast in November.
  • Taken together, the upgrades to previous forecasts amount to 1% over three years
  • Inflation: It is expected to be 2.0% this quarter, 2.7% in early 2018 and 2.6% in early 2019. That compares with November forecasts of 1.8%, 2.8% and 2.6%, respectively.
  • Unemployment: forecasts have been revised down. Expected to be 4.9% this quarter, 5.0% in early 2018 and 5.0% in early 2019. That compares with November forecasts of 5.0%, 5.5% and 5.6%, respectively.

They are considerably more optimistic than me. They still think Brexit has caused problems, but are more optimistic than they were. Given that, if anything, the uncertainties around Brexit have increased this seems wildly optimistic.

So, let me suggest a hypothesis. Suppose the Bank wants to suggest things are going well. And at the same time that inflation is rising. What's the obvious consequence? It is, of course, a rate rise, which they can deliver. And the result of that would be massively increased uncertainty: we have no idea how households would react to such a change. Many will struggle. And maybe that's precisely what the Bank wants. They may want to get a recession in early to demonstrate the cost of Brexit whilst change might still be possible. Trump's policies just help all that along.

Am I being too conspiratorial? Who knows? but it would make sense from the City's perspective.