Bank of England forecasts end to living standards squeeze provided Brexit does not disrupt trade

Mark Carney Credit: PA

One of the Bank of England's main jobs is to keep prices stable, to protect the value of the pound in your pocket.

Prices demonstrably are not stable.

Inflation stands at 2.6%, significantly above the Bank of England's target rate of 2%, and on Thursday the Bank suggested it is likely to keep rising.

And yet, despite this, the Bank has decided, once again, to sit on its hands, keeping interest rates on hold.

Two members of the Monetary Policy Committee voted for interest rates to rise immediately. In their view inflation needs addressing and keeping cost of borrowing at historically low levels carries its own risks, not least of people over-extending themselves.

Over the last year in particular as households have been squeezed so unsecured borrowing has increased rapidly.

Ten years ago, too much debt caused a financial crisis and a terrible recession.

Mark Carney takes a benign view of the amount of debt households and businesses are carrying around. He concedes that at the margins some may struggle when interest rates begin to rise but insists most are well-placed and that banks are well placed to absorb losses that do arise.

Mark Carney's belief is that the core issue remains Brexit.

On Thursday he was unequivocal: the vote to leave the EU has damaged the British economy. Not on scale that was widely suggested but it has created a hesitancy that is holding growth back.

The Bank of England's forecast is that the squeeze on living standards will abate and growth will pick up next year, provided - and here's the rub - that Britain manages to forge a new relationship with the EU in such a way that does not disrupt trade.

The point is it is not at all clear that is possible.

The Bank is taking a pragmatic view. It will not be drawn on what sort of a relationship would best protect our prosperity, presumably as it is keen to avoid getting dragged into a political row.

Mark Carney's instinct is to wait to see how things play out, and, for the moment, he has managed to persuade his colleagues to follow his lead.

An interest rate rise certainly feels a long way off. The market is betting on 2019.

We will see, a lot will happen between now and then and the market is often wrong.