The Bank of England made a small, but defensible, mistake by raising its interest rate from 0.25% to 0.5% on Thursday. It must now avoid compounding the error. The view of the world with which the central bank justifies the first act of monetary tightening in a decade is one that is particularly pessimistic about the supply side of the UK economy, and unusually optimistic about the demand side. The bank’s Monetary Policy Committee (MPC) now thinks the economy can only grow sustainably by 1.5% a year in the long run. This is quite a downgrade, and a measure of how much the central bankers think Brexit will cost over time. At the same time, the MPC seems unworried about the risk that demand may suddenly deteriorate. This is an odd view. Even if productivity is hurt by Brexit, that supply-side hit will take time to actually arrive. Demand, however, is fickle. The surprising demand growth since the referendum, meanwhile, is largely down to surprisingly robust consumption. As it is fuell...

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