The pound soared yesterday on news that the Bank of England’s Monetary Policy Committee (MPC) had voted 9-0 not to increase the level of Quantitative Easing beyond the £175bn already promised.

On one level, this makes sense. Quantitative Easing is the most deliberate form of inflation: an active policy to increase the supply of money. Inflation devalues a currency not just in comparison to goods and services domestically, but also in comparison to currencies internationally. So the more one Quantitatively Eases, the more pounds one would expect to have to give up to tempt a wily American or European to part with their dollars or Euros. So far, so good.

But if the BBC is to be believed, this is not the reason why the pound soared. According to the BBC, the reason for the pound’s rally was that “The decision not to inject more money was seen as a positive sign that the UK economy was recovering and did not need further help from the central bank." And therein lies the problem.

The Bank of England, despite what we are regularly told by politicians, central bankers (unsurprisingly) and economists trained in the Keynesian school, cannot act as an omniscient oracle, able to predict the future of the economy with precision and foresight. The Bank of England can at best act as a research institute, albeit one with a vast staff. Indeed, Tim Congdon argues that Mervyn King would reduce it to exactly that.

The reason for this, as economists of the Austrian School demonstrated, is that information about the economy exists in the minds of the participants in that economy, and is necessarily vast and diffuse. No single authority – be it bank, ministry or leader – can possibly gather together the trillions of data severally known by the millions of actors within the UK economy (let alone the billions beyond our borders whose actions affect our own). That information can only be found within “The Market" – an unfortunate analogy for the interplay of actors seeking to pursue their own ends with their limited resources. Thus the market price will always be a better indication of supply, demand and future expectations than that of any single expert or group of experts.

Consequently, it would be madness for actors to read more into the opinions of the UK’s central bank than in the investment decisions of millions of capitalists across the country and beyond.

There are therefore two possible explanations for why the market responded as it did. The first is that the BBC’s analysis is correct because “that market" (in fact, currency speculators) have swallowed the myth of the all-seeing central banker and have put their faith in the nine wise men. If so, woe betide us all.

The other explanation is the BBC is wrong, that speculators know that the market knows best, but that they also understand that the value of Sterling can only fall if Quantitative Easing goes on. With such a clear signal from the Bank of England that at least part of their inflationary policy is closed-ended, the markets can breath a small sigh of relief.