Shock absorbers? Energy prices, labour market slack and monetary policy: a view through the lens of a structural model

Daniel Albuquerque, Jamie Lenney, Matthew McKernan, David Murakami, Peter Paz and Philip Schnattinger

Wholesale energy prices surged in 2021 and again in 2022, but UK inflation remained high well beyond the direct pass-through of higher energy costs. With energy prices moving sharply again following the recent conflict in the Middle East, could a similar scenario happen again? We use a structural macroeconomic model to show that the answer depends on labour market conditions. When workers are scarce, they are better able to recoup real income losses through higher wages, raising firms’ costs and broadening inflationary pressure. The model implies that the same energy shock is roughly twice as inflationary when vacancies are plentiful relative to job-seekers as when the labour market is loose.

Continue reading →

Narratives under the microscope: what MPC transcripts can tell us about policy thinking

Dragos Gorduza, Livia Silva Paranhos and Ivan Yotzov

Monetary policy decisions reflect incoming data, forecasts, and policymaker preferences. In this post, we use large language models (LLMs) to analyse Bank of England Monetary Policy Committee (MPC) transcripts from 2015 to 2017. We extract structured measures of individual views on inflation and growth, and the narratives justifying policy decisions. This gives a new perspective on UK monetary policy makers’ reasoning, using recently published transcripts. We show that concerns about economic growth relative to its potential weakened and later strengthened over the sample, while concerns about above-target inflation increased. We link these measures to voting behaviour and show that, over the sample period, both growth and inflation measures predict votes for higher rates, but only growth measures explain votes to cut Bank Rate.

Continue reading →

Monetary policy transmission: it’s all in the curve

Sofia Carollo and Natalie Burr

While monetary policy sets short-term policy rates, households and firms borrow at varying time horizons. How a policy decision reshapes the whole yield curve therefore matters. We trace the reactions of yields in narrow windows around UK monetary policy announcements across two dimensions: a ‘level’ surprise that shifts the entire curve and a ‘slope’ surprise that changes its steepness. We find that a level surprise affects CPI inflation more than a slope surprise does; this result is difficult to recover from surprises that conflate the two dimensions. So, the policy rate tells only part of the story: two curves considered equivalent from a stance perspective can lead to different inflation outcomes. Policymakers must be attuned to these differing effects.

Continue reading →

Is UK productivity growth low? A historical and cross-country perspective

Sophie Piton and Fabrizio Cadamagnani

A lot has been written about UK productivity and how weak it’s been in recent years. This post assesses UK productivity trends in a historical and cross-country perspective. Productivity growth has been weak across G7 economies over the past two decades, reflecting the end of the information and communications technology (ICT) revolution and the flattening gains from globalisation. The slowdown was particularly large in the UK, mainly because it experienced a larger decline in the share of manufacturing than peers and then because of the impact of Brexit. In recent years, US productivity growth has been accelerating thanks to tech, offering some optimism for the future of UK productivity.

Continue reading →

Who’s paying attention? How firms form policy rate expectations

Lea Havemeister, Nicholas Bloom, Philip Bunn, Paul Mizen, Gregory Thwaites and Ivan Yotzov

Monetary policymakers carefully craft their policy decisions and communication, and financial markets respond quickly. Yet the effect of policy on the economy ultimately depends on how firms perceive and anticipate monetary policy. We present new data from an economy-wide UK business survey on Bank Rate perceptions and expectations. The data provide direct evidence on monetary policy transmission, specifically on how firms form and update policy rate expectations. Firms’ perceptions of current policy rates are precise, and expectations adjust rapidly to policy decisions within days. Moreover, more productive firms and those with higher levels of borrowing forecast policy rates more accurately. CEOs and CFOs also link policy rate expectations to inflation expectations in ways consistent with standard macroeconomic models.

Continue reading →

Does higher productivity create inflationary or disinflationary pressure?

Ludovica Ambrosino, Jenny Chan and Silvana Tenreyro

Recent technological advances raise an important question for policymakers: will higher productivity lead to disinflationary or inflationary pressure? A coming wave of AI-driven productivity growth is often described as a disinflationary tailwind that would allow central banks to hold interest rates lower without reigniting inflationary pressures. Yet faster productivity growth can just as plausibly call for higher, not lower, interest rates. By raising expected future income and the returns to investment, it stimulates consumption and investment today, pushing up the natural rate of interest. Neither view is entirely wrong and our model reconciles the two by showing that the answer depends on the timing, permanence, and sectoral origin of the productivity shock.

Continue reading →

Credit constraints and housing market access

Belinda Tracey and Neeltje van Horen

The Help-to-Buy (HTB) programme introduced in 2013 reopened the 95% loan to value (LTV) segment of the UK mortgage market, thereby reducing the minimum deposit requirement for many first-time buyers (FTBs) from 10% to 5% (Chart 1). That policy change offers a useful natural experiment to study how deposit constraints shape access to homeownership. We previously demonstrated that this easing of deposit constraints generated a clear increase in local spending. In a recent paper, we show that lowering this constraint increases FTB home purchases, particularly among households without access to external financial support for their deposit.

Continue reading →

Financial markets point to very data-dependent monetary policy

Nades Raviraj and Danny Walker

Big and uncertain shocks have pushed UK inflation above the 2% inflation target over the past few years. How did financial markets view the Monetary Policy Committee’s (MPC’s) monetary policy during this unprecedented period? We show that markets have come to perceive the MPC’s policy stance as increasingly dependent on data releases. In particular, the responsiveness of UK market rates in tight windows around data releases rose significantly from 2022 to 2025. Zooming out to longer time windows in between MPC meetings, the change in services inflation explained a historically large share of the overall change in market rates over the same period.

Continue reading →

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.

Continue reading →

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.

Continue reading →