{ "title": "Monetary Policy Issues in the UK: United Kingdom", "publication": "Selected Issues Papers, July 24, 2024", "sourceUrl": "https://www.imf.org/en/publications/selected-issues-papers/issues/2024/07/24/monetary-policy-issues-in-the-uk-united-kingdom-552412", "canonical": "https://www.imf.org/en/publications/selected-issues-papers/issues/2024/07/24/monetary-policy-issues-in-the-uk-united-kingdom-552412", "overlayPath": "/en/publications/selected-issues-papers/issues/2024/07/24/monetary-policy-issues-in-the-uk-united-kingdom-552412/index.md", "summary": "After hiking rates 14 consecutive times between December 2021 and August 2023 to arrest above-target inflation, the Bank of England (BoE) has held rates at 5.25 percent since then.", "sections": [ { "heading": "Overview", "content": "- After hiking rates 14 consecutive times between December 2021 and August 2023 to arrest above-target inflation, the Bank of England (BoE) has held rates at 5.25 percent since then.\n- The paper examines three concurrent monetary policy questions:\n - How have the macroeconomic and financial effects of BoE monetary tightening during the current cycle compared with experiences in other major advanced economies (AEs), and with previous UK tightening cycles?\n - What is the impact of US Fed decisions on UK monetary transmission, and the attendant implications thereof for BoE communications?\n - How do model-based predictions of UK monetary policy paths (which seek to stabilize inflation and the output gap) compare with staff’s recommended path in the 2024 Article IV consultation?" }, { "heading": "Key findings", "content": "- Monetary transmission\n - Monetary transmission during the current tightening cycle has largely mirrored previous episodes and experiences in other major AEs.\n - Exception: the mortgage channel has been slower due to a higher share of fixed-rate mortgages.\n- Financial spillovers and external influence\n - Fed announcements have an outsized impact on UK financial markets.\n - This places a premium on BoE communications in a context where the BoE may diverge from the Fed.\n- Model-based optimal paths vs. staff recommendation\n - Optimal rate path predictions are close to staff’s recommended path in the 2024 Article IV consultation.\n - A caveat: if the BoE attached a high weight to concerns about a prolonged period of above-target inflation leading to de-anchoring of inflation expectations, a slower pace of cuts would be warranted." }, { "heading": "Policy implications and recommendations", "content": "- Communications\n - Strengthen and tailor BoE communications given the outsized impact of Fed announcements and potential divergence between the two central banks.\n- Rate-path consideration\n - Follow staff’s recommended path, noting model-based optimal paths are similar.\n - Consider a slower pace of cuts if policymakers place a high weight on preventing de-anchoring of inflation expectations.\n- Financial stability and mortgage channel\n - Monitor mortgage-channel dynamics closely due to the slower transmission stemming from a higher share of fixed-rate mortgages.\n\nMonetary Policy Issues in the UK: United Kingdom, Selected Issues Papers, July 24, 2024.\n\n---\n\n Content in this bundle\n\n- Monetary Policy Issues in the UK; United Kingdom; Selected Issues Paper No. 2024/028; June 14, 2024\n - Monetary Policy Issues in the UK; United Kingdom; Selected Issues Paper No. 2024/028; June 14, 2024 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Monetary Policy Issues in the UK; United Kingdom; Selected Issues Paper No. 2024/028; June 14, 2024 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/selected-issues-papers/issues/2024/07/24/monetary-policy-issues-in-the-uk-united-kingdom-552412" } ], "bullets": [ "[Markdown version](/en/publications/selected-issues-papers/issues/2024/07/24/monetary-policy-issues-in-the-uk-united-kingdom-552412/index.md)", "[Structured JSON version](/en/publications/selected-issues-papers/issues/2024/07/24/monetary-policy-issues-in-the-uk-united-kingdom-552412/index.json)", "[Bundle manifest](/en/publications/selected-issues-papers/issues/2024/07/24/monetary-policy-issues-in-the-uk-united-kingdom-552412/bundle-manifest.json)", "Authors: Agnese Carella, Ruo Chen, Katherine Dai, Gloria Li, Ruy Lama, Roland Meeks", "Published: July 24, 2024", "Series: Selected Issues Papers", "DOI: https://doi.org/10.5089/9798400283550.018", "After hiking rates 14 consecutive times between December 2021 and August 2023 to arrest above-target inflation, the Bank of England (BoE) has held rates at 5.25 percent since then.", "The paper examines three concurrent monetary policy questions:", "Monetary transmission", "Financial spillovers and external influence", "Model-based optimal paths vs. staff recommendation", "Communications", "Rate-path consideration", "Financial stability and mortgage channel", "**Monetary Policy Issues in the UK; United Kingdom; Selected Issues Paper No. 2024/028; June 14, 2024**" ], "related": [ { "title": "Monetary Policy Issues in the UK; United Kingdom; Selected Issues Paper No. 2024/028; June 14, 2024", "role": "document", "sourceUrl": "https://www.imf.org/-/media/files/publications/selected-issues-papers/2024/english/sipea2024028.pdf", "summary": { "path": "/-/media/files/publications/selected-issues-papers/2024/english/sipea2024028.pdf.md", "mime": "text/markdown" }, "binary": { "path": "/-/media/files/publications/selected-issues-papers/2024/english/sipea2024028.pdf", "mime": "application/pdf" } } ], "alternates": { "markdown": "/en/publications/selected-issues-papers/issues/2024/07/24/monetary-policy-issues-in-the-uk-united-kingdom-552412/index.md", "json": "/en/publications/selected-issues-papers/issues/2024/07/24/monetary-policy-issues-in-the-uk-united-kingdom-552412/index.json", "bundleManifest": "/en/publications/selected-issues-papers/issues/2024/07/24/monetary-policy-issues-in-the-uk-united-kingdom-552412/bundle-manifest.json" }, "generatedAtUtc": "2026-09-20T19:54:16.283Z" }