By Rachel Reeves of the Bank’s Structural Economic Analysis Division and Michael Sawicki of the Bank’s External Monetary Policy Committee Unit.
Communication by the Bank of England’s Monetary Policy Committee (MPC) can convey information to market participants about the economic and policy outlook. In an inflation-targeting framework, clear communication by the central bank has an important role in explaining interest rate decisions and in helping to anchor inflation expectations. This article explores how financial markets react to different forms of communication by the MPC. The article finds that markets react to collective forms of communication such as the MPC Minutes and Inflation Report. But reactions to what might be called individual forms of communication - speeches and testimony to parliamentary committees - are more difficult to discern. Compared with a similar study for the United States, the results for the United Kingdom are less pronounced.