Research and analysis
Research work published by the Bank is intended to contribute to debate, and does not necessarily reflect the views of the Bank or of MPC members.
Assessing the risk to inflation from inflation expectations (118k)
By Clare Macallan and Tim Taylor of the Bank’s Monetary Assessment and Strategy Division and Tom O’Grady of the Bank’s Structural Economic Analysis Division.
Inflation expectations play an important role in the transmission mechanism of monetary policy. There is a risk that the periods of above-target CPI inflation in the past three years might cause inflation expectations to drift upwards. That might make inflation itself more persistent, via changes in price and wage-setting behaviour. And so, other things being equal, returning inflation to target would require tighter monetary policy. This article provides a framework that can be used to monitor the risk to inflation from inflation expectations. While recent developments provide few signs that the risk is materialising, the imperfect nature of data mean that the risk can be assessed only imperfectly.
International evidence on inflation expectations during Sustained Off-Target Inflation episodes (57k)
By Matthew Corder and Daniel Eckloff of the Bank’s Monetary Policy Unit.
The high level of UK inflation in recent years raises the possibility that inflation expectations may drift upwards, making the period of above-target inflation last for longer. This article presents some evidence on inflation expectations during Sustained Off-Target Inflation (SOTI) episodes in other inflation-targeting countries and outlines some of the key trends. The evidence suggests that short and medium-term inflation expectations have tended to drift in the direction of the deviation of inflation from target. But generally the movements in inflation expectations were more gradual than movements in inflation itself and expectations returned to their previous level once inflation returned to target.
Public attitudes to monetary policy and satisfaction with the Bank (57k)
By Sally Hills and Clare Macallan of the Bank’s Monetary Assessment and Strategy Division.
The Bank of England’s success in achieving its monetary policy objectives will depend, in part, on the public’s awareness and understanding of monetary policy. Results from the Bank/GfK NOP survey suggest that public awareness of the policy framework remains high and has changed little over the past year. A greater proportion of respondents to the Bank/GfK NOP survey were satisfied than dissatisfied with the way in which the Bank has set interest rates to meet the inflation target. But the extent of satisfaction has fallen since mid-2010.
The use of foreign exchange markets by non-banks (73k)
By James O’Connor and James Wackett of the Bank’s Foreign Exchange Division and Robert Zammit of the Bank’s Sterling Markets Division.
As part of its Market Intelligence programme, the Bank of England monitors developments in a range of financial markets, feeding information gathered from contacts into its monetary and financial stability policy processes. This intelligence provides the Bank with insights into a variety of rapidly evolving markets, including the foreign exchange market, where turnover has more than trebled over the past decade. This article draws on this intelligence, economic theory and market data to shed light on the role that non-bank participants — both financial and non-financial — play in the foreign exchange market.
Housing equity withdrawal since the financial crisis (70k)
By Kate Reinold of the Bank’s Structural Economic Analysis Division.
The amount of housing equity withdrawal (HEW) has swung from being significantly positive before the financial crisis and recession, to negative over the past few years. The net effect of a chain of housing transactions is typically a large equity withdrawal. The fall in the number of housing transactions is therefore likely to have been a key driver of the fall in equity withdrawal since the financial crisis. There is little sign that, at the aggregate level, households are making an active effort to pay down debt more quickly than in the past.
Using internet search data as economic indicators (72k)
By Nick McLaren of the Bank’s Conjunctural Assessment and Projections Division and Rachana Shanbhogue of the Bank’s Structural Economic Analysis Division.
Data on the volume of online searches can be used as indicators of economic activity. This article examines the use of these data for labour and housing markets in the United Kingdom. These data provide some additional information relative to existing surveys. And with further development, internet search data could become an important tool for economic analysis.