If Pate’s Grammar School set UK Monetary Policy…

Samuel Cole, Jack Sherer-Clarke, Oliver Wallbridge, Annabel Manley.


Each year, the Bank of England organises the Target 2.0 competition for A-level economics students. In this guest post, the winning team at March’s national final from Pate’s Grammar School explain what they would do if they were the MPC…

We decided as a team to hold the Bank Rate at 0.5% and to maintain asset purchases at £375bn. In our view it is not yet time to tighten monetary policy. Though we believe the output gap is small, the economy is yet to reach escape velocity and the Wicksellian natural rate of interest is likely to remain depressed. We are more optimistic on potential supply than other economists and think oil prices will stay low. As such, we predicted that inflation will only reach 1.7% in 2018Q1 compared to the MPC’s median forecast in February of around 2.1% (which has since fallen to 1.9%).

Continue reading “If Pate’s Grammar School set UK Monetary Policy…”

Rewriting history: understanding revisions to UK GDP

Seeing into the future is always difficult. But in the world of macroeconomics, just trying to look at the past can be a challenge. Official estimates of economic growth in the UK are regularly revised, so forecasts for growth over the next year have to be made on the basis of an ever-changing report card for the previous year. This post tackles some of the most common questions about UK GDP revisions, a topic close to the heart of many users of the UK’s National Accounts. Are the initial estimates of growth biased? Can you predict revisions? Does UK data get revised more than other countries? And which parts of early estimates of GDP should be approached with caution?

Continue reading “Rewriting history: understanding revisions to UK GDP”

What does the UK experience tell us about cyclicality in banks’ risk appetite?

Matthew Osborne, Alistair Milne & Ana-Maria Fuertes.

Does the risk appetite of banks vary over the cycle? Our recent research paper sheds light on this issue by examining the time-varying correlation between banks’ capital ratios and lending rates which cannot be explained by bank characteristics, such as capital requirements, portfolio risk, size and market share, or macroeconomic factors.  The relationship notably differs between episodes of rapid credit expansion (“good times”), and episodes of crisis with moderate or negative credit growth (“bad times”).  This is difficult to reconcile with traditional theories of bank intermediation, but is consistent with recent theories emphasising cyclical variation in bank leverage and risk appetite.

Continue reading “What does the UK experience tell us about cyclicality in banks’ risk appetite?”