Climate change increases bilateral trade costs (through its impact on maritime shipping)

Maximilian Huppertz

It is well established that climate change affects productivity, but its effects on trade costs have not been studied. Ignoring these and focusing solely on productivity could lead to an underestimate of its overall impact. It could also create a source of climate-related risk, with the potential to affect the financial system through trade finance and insurance. In a recent Staff Working Paper, I show that climate change indeed affects trade cost, driven by its impact on maritime trade in particular. Focusing on productivity alone leads to a roughly 9% underestimate of the overall impact. My methodology is easy to embed in studies of the overall impact of climate change.

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Under one roof: housing and inflation expectations

Vedanta Dhamija, Ricardo Nunes and Roshni Tara

Inflation has been widely discussed in recent years, from supermarket aisles to newspapers. But what if what people think inflation is stems not only from grocery prices or energy bills, but from more? Our analysis in Dhamija et al (2026) shows house prices matter in this context, ie housing is salient. Using household surveys for the United States, we find that people tend to overweight their expectations about house prices when thinking about inflation with a coefficient of 25%–45%, significantly above the weight of house prices in the inflation index. Should central banks care about this? The short answer is yes.

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Opening the floodgates? Modelling spillovers from flood insurance protection gaps to UK mortgages

Will Banks and Kemal Erçevik

When extreme weather hits, households typically turn to insurers to cushion the financial blow. But rising temperatures and greater exposure in high-risk areas could test the insurance sector’s capacity to absorb such losses. As the Financial Policy Committee has highlighted, climate change could create insurance protection gaps, leaving households vulnerable and shifting risks across the financial system. We have built a model to estimate potential protection gaps, finding that – under conservative assumptions – the share of UK mortgagors uninsured could increase from 5% today to around 7%–10% in 2050, or up to 16% following a severe flood event. While this would have substantial welfare implications, our model suggests the aggregate impact on lenders would be small compared to previous financial crises.

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Money talks, broadly speaking

Aaron Clements-Partridge and Ryland Thomas

Broad money aggregates failed policymakers when used as an intermediate target in the 1980s, but they appeared to predict the post-pandemic inflation. Where does that leave their role in setting monetary policy today? That was the topic of a recent workshop hosted by the Bank on ‘Analysing the Information Content of Money’ which brought together academic experts and central bank staff to review the evidence. In this blog we offer our key takeaways from the workshop. We argue that there is value in understanding developments in the broad money data. While it shouldn’t assume special status, money provides an alternative lens through which to assess and communicate medium-term risks to the inflation outlook.

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Stress-free spending: why payment choice matters for disabled people

Lily Smith

Research on payment preferences in the UK has rarely explored how preferences and experiences vary by disability type, often treating disabled people as a homogenous group. Recent Bank of England research addresses this gap by focusing on the payment preferences and behaviours of different disability types and shows that, for disabled people, payment choice is crucial for reducing stress, building confidence, and supporting independence.

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What machines taking over pricing means for central banks

Anthony Savagar, Misa Tanaka and Jagdish Tripathy

With increased availability of big data and computing power, more firms are adopting algorithmic and AI-powered pricing to adjust prices rapidly in response to changing economic conditions over time and across consumers. This post reviews the existing research, draws implications for central banks, and identifies areas for further research on this topic. The research reviewed here was also used to inform Lombardelli and Patel (2026). The existing research suggests that new pricing technologies will lead to faster pass-through of shocks to prices, greater market segmentation, and may improve the inflation-output trade-off for monetary policy makers. To ensure price stability, central banks will need to monitor granular, high-frequency price data to gauge the impact of shocks on prices and inflation expectations.

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Tomorrow’s costs, today’s prices: why expectations matter for inflation

Boromeus Wanengkirtyo, Ivan Yotzov and Mishel Ghassibe

Can tomorrow’s costs affect firm prices today? When a temporary tariff schedule on imported inputs was announced in March 2019, many UK firms adjusted prices in anticipation – despite the potential cost change being in the future. In a recent working paper, we use firm‑level survey data to estimate ‘intertemporal pass‑through’ (IPT): how much expected future marginal costs move current prices. Consistent with modern macroeconomic theory, we find big differences across firms: those that change prices less often, and expect the shock sooner, responded the most. A model shows this variation across firms makes aggregate inflation more forward‑looking, so announcements of future policies can move inflation today.

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Zooming in: firm-level expectations for economy-wide inflation

Federico Pessina, Maren Froemel and Ivan Yotzov

Understanding inflation expectations is key for monetary policy makers and has been central to the policy debate in recent years. We use data from the Decision Maker Panel (DMP) – an economy-wide UK business survey – to analyse businesses’ expectations about aggregate CPI inflation, and the relationship with their own-price expectations. On average, firms are attentive to current inflation rates, but larger and more productive firms report more accurate perceptions and expectations. In recent years, both one-year and three-year CPI expectations have become more sensitive to inflation perceptions, and three-year CPI expectations have also become more sensitive to one-year expectations. Finally, aggregate dynamics matter for firms’ decisions: CPI expectations are correlated with firms’ own-price expectations and more so for more productive firms.

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Bond financing conditions and economic activity in the UK: aggregate and firm-level evidence

Eduardo Maqui, Nicholas Vause and Márcia Silva-Pereira

In recent decades, the corporate bond market has grown from a relatively niche source of finance for UK corporations to a central pillar alongside bank loans. This transition raises an important question: as with bank credit conditions, have supply conditions in the corporate bond market come to significantly affect UK economic activity? Our recent research suggests the answer is a resounding yes. We show that a measure of corporate bond financing conditions − the Excess Bond Premium (EBP) − not only anticipates macroeconomic outturns in the UK, but also influences investment by UK firms, especially those that are highly leveraged and more reliant on bond finance.

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Monetary policy, state-dependent bank capital requirements and the role of non-bank financial intermediaries

Manuel Gloria and Chiara Punzo

The expansion of non-bank financial institutions (NBFIs) is transforming the financial landscape and introducing fresh challenges for financial stability and oversight at the same time as creating opportunities. Using a dynamic stochastic general equilibrium (DSGE) model, we find that while NBFIs may enhance long-term welfare for households and entrepreneurs in normal conditions, their greater role also heightens vulnerabilities to severe shocks in the financial system. Greater NBFI activity boosts competition in the financial sector, leading to more efficient resource allocation. A working paper detailing these results was recently published.

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