Growth better - warning lights flashing on interest rates

Bank of England Image copyright PA

When Mark Carney channelled his inner Gwyneth Paltrow and wondered aloud when the UK might "consciously recouple" with the global economy, he was sending a delicate signal wrapped in some Hollywood glamour.

Today, that delicate signal - first given in a BBC interview the Governor of the Bank of England gave last month - became a lot stronger.

Global growth is continuing at a rate not seen since 2011.

All the vital economic engines - America, China, continental Europe and Japan - are, if not exactly purring, exuding a level of confidence which has put the Bank in a more positive mood.

The European Commission's Economic Sentiment Indicator is close to a 17 year high.

Growth in China was faster in 2017 compared with 2016.

The US is seeing a jobs boom.

Risks

We are an exporting nation - more than 25% of everything we make we sell abroad.

If "abroad" is doing well, we do well.

The Bank has upgraded growth for the UK for this year and next.

Employment rates are at record levels and wage growth is slowly returning.

Business investment is up.

Now, this benign environment does contain risks.

As demand increases globally, inflationary pressures rise.

Oil prices are up.

Commodity prices for things like metals are up.

Rising wages in the UK increases the risk of domestic inflation taking hold.

Warning

The Bank is wary.

Inflation is still 1% above the 2% target set by the Government.

It was willing to "look through" that issue whilst the economy still needed the support of hyper-low interest rates.

That willingness has waned.

Today the Bank warned that interest rates are likely to increase earlier this year than expected and then more often after that than previously anticipated.

The chances of the next interest rate rise happening in May have risen considerably.

The chances of another rate rise in 2019 and 2020 have also increased.

Let's not forget - the present very low rates are unconventional and allowing inflation to float above target is also against the norm.

Hand brake

Today the Bank signalled that the old conventions of increasing interest rates when inflation is above target would return.

The cost of mortgages is likely to rise.

And savers at last will see returns improve.

The economy is stronger, the Bank has made clear today.

But not everything in the garden is rosy.

It points out that the UK economic engine still "remains restrained by Brexit-related uncertainty" which is "the most significant influence on the economic outlook".

We are driving along with the hand brake half on.

Growth is modest by historic standards and the UK has gone from the fastest growing economy among the G7 largest global economies to the slowest.

Consumer confidence is also soft, affected by the incomes squeeze which has seen earnings not rising as fast as inflation.

There are two big points from today's Inflation Report, the Bank's three monthly health check on the UK economy.

Growth is better.

And the risk of interest rate rises has risen.