Research Briefing | Oct 25, 2021

UK | MPC’s hawkish shift puts spotlight on reversing QE

 MPC’s hawkish shift puts spotlight on reversing QE

Rising odds of an early rate hike have brought the BoE’s guidance on when it will start reversing course on asset purchases into sharper focus. Market rate pricing currently suggest that reinvestments could cease as early as spring 2022, although we think August next year is more likely.

What you will learn:

  • Assuming financial markets are functioning normally at that point, and the future path of interest rates is clearly signalled, the MPC believes the
    macroeconomic consequences of quantitative tightening (QT) would be small.
  • In our view, the MPC’s premise is reasonable. Decisions around QT shouldn’t greatly affect the pace at which the official interest rate rises, nor the space to cut borrowing costs in the event of a future shock.
  • But even allowing for a muted effect from QT and scope to take rates negative, the BoE’s room to support the economy with rate cuts will be very limited for years to come. So QE-to-QT is unlikely to be a one-way street.
Back to Resource Hub

Related Services

Seoul, South Korea

Post

BoK’s monetary policy to tighten even as hiking cycle ends

Even without rate hikes, central banks' monetary policies can effectively tighten if the nominal neutral rate falls below the policy rate. We expect this will be the case for the Bank of Korea this year, as the gap between the policy rate and the nominal neutral rate widens.

Find Out More

Post

China: Emerging green shoots in Spring, but not out of the woods

We now incorporate a faster recovery from the post-Covid exit wave and raise our 2023 full-year GDP growth forecast to 4.5% (from 4.2% previously).

Find Out More