United Kingdom: Selected Issues

IMF Staff Country Reports, July 8, 2024

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United Kingdom: Selected Issues

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Bibliographic details

• Published: July 8, 2024
• Series: IMF Staff Country Reports
• DOI: https://doi.org/10.5089/9798400281426.002

Executive summary

• Analyses monetary policy issues in the UK, examining key macro and financial indicators and assessing the effects of the tightening thus far.
• Finds that monetary transmission has largely mirrored previous episodes, with the most notable exception of the mortgage channel, which has been slower due to a higher share of fixed-rate mortgages.
• Reveals an outsized impact of federal announcements on UK financial markets and argues that this will place a premium on Bank of England (BoE) communications in a context where the BoE may diverge.
• Concludes that monetary transmission in the UK during the current cycle has mostly worked as expected and has been similar to the experiences in other advanced economies.

Key findings on transmission and spillovers

• Monetary transmission in the current cycle has mostly worked as expected and resembles experiences in other advanced economies.
• Mortgage channel:
  • Slower transmission due to a higher share of fixed-rate mortgages.
• Federal (Federal Open Market Committee) spillovers:
  • Federal announcements have an outsized impact on UK financial markets.
  • Results indicate that Federal Open Market Committee spillovers do have a sizable effect on monetary transmission in the UK.
• Identification approach:
  • Monetary policy surprises identified through changes in high-frequency market indicators within a narrow window around monetary policy announcement.

Policy implications and emphasis

• The outsized impact of federal announcements implies a premium on Bank of England (BoE) communications, particularly in situations where the BoE may diverge from Federal Reserve policy.
• Communication strategy:
  • Enhanced BoE communications are implied to be important given foreign policy spillovers and the potential for divergence.

Subjects and keywords

• Subject: Education, Education spending, Expenditure, Housing, Inflation, National accounts, Prices
• Keywords: Education spending, Fed Policy spillover, Global, Housing, Inflation, MPC decision, spending scenario, UK construction, UK workforce, visa regime

Content in this bundle

• United Kingdom: Selected Issues; IMF Country Report No. 24/204; June 14, 2024
  • United Kingdom: Selected Issues; IMF Country Report No. 24/204; June 14, 2024 (Markdown version)
  • United Kingdom: Selected Issues; IMF Country Report No. 24/204; June 14, 2024 (PDF)