The BOE decision to not hike rates today might seem warranted to some extent but it might just end up being a lesson in history if things don’t go their way. The inflation report this week did show signs of slowing inflation but at 6.7%, the UK still sits atop the throne in terms of the inflation ranking among major economies:

*Japan data is an estimate, to be released on 22 September

And the thing to note about all of this is that the BOE is pausing at a time when the economy is beginning to worsen significantly. Yes, that is definitely the prudent step. But when you take into account that markets basically gave them a free pass to sneak in one more rate hike today, it could end up being an opportunity missed for the central bank.

I mean if Q4 conditions end up being as bad or worse than Q3, the argument for a rate hike in November might look like a poor reflection of how the BOE is managing their policy settings. And if that is the case, they risk overtightening into a rapidly declining economy and could just send it over the edge and bringing about a hard landing.

To keep things short, this was perhaps the last chance that the BOE might get to tighten policy further and they did not take it.

And so, therein lies the risks of stagflation in the UK economy with Bailey & co. maybe having no ways of resolving that situation.

This article was written by Justin Low at www.forexlive.com.