OK, so now I'm confused

Correct me if I'm wrong, but wasn't it just a week ago that Bank of England Governor Mark Carney delivered a very dovish take on the policy outlook?  Despite the fact that CPI is at a five-year high, he clearly stated that "now is not  the time" for policy tightening, given the deteriorating growth outlook and the uncertainty over the impact of Brexit.

Today Carney has adopted a very different tone,  telling an ECB-sponsored forum in Portugal that some removal of stimulus might soon become necessary, particularly if a rise in business investment offsets any slowdown in consumer spending.  Some of the wording of his message was positively Greenspanesque:  "Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional."

Sterling has naturally jumped sharply in response to these comments, but is Carney really suggesting that higher rates are in the cards?  Maybe not.  Firstly, how likely is it that business investment will pick up before the shape of the Brexit deal (if there even is one) is known?  Business groups have been issuing dire warnings about how bad things will get in the event of anything like a "hard Brexit". It's hardly credible that business investment will ramp up sharply until there is a lot more certainty.

Secondly, Carney made it clear that the possible need for a removal of stimulus is something the Bank's Monetary policy Committee will discuss "in the coming months".  This hardly suggests any degree of urgency, at least on Carney's part, but it may offer a clue as to why he has adopted such a strikingly different tone this week.

Some of the Bank's senior staffers, including its chief economist Andy Haldane, are much more concerned about inflation than Carney is.  Recent MPC decisions to keep rates low have not been unanimous, with three members favouring a rate increase this month.  In taking a more nuanced approach today than he did last week, Carney may be signalling to the MPC's hawks that he is aware of their concerns. It still seems unlikely that the Bank will be choose to raise rates any time this year.