MNI BRIEF: BOE Aims For Low Key QT Start

The Bank of England Monetary Policy Committee strategy review appears to aim at a low key start to quantitative tightening. The new approach is that when Bank Rate hits 0.5%, which the Bank's market rate curves shows is only fully priced in three years down the line, the MPC will look to stop reinvesting the proceeds of maturing gilts and they reckon this should have a muted effect on yields, with the review stating that if unwind is carried out "in a gradual and predictable manner (the impact) .. is likely to be smaller than that of asset purchases."

The fact that the MPC can now use negative rates is one factor that helped lower the QT threshold from the previous 1.5% but the MPC did not agree a collective view of where the effective lower bound is and nor did the Bank set out the details on how tiering will work on negative rates. The Monetary Policy Report showed the Bank setting out gloomy growth forecasts for 2023 and 2024, with four quarter growth at 1.3% in Q3 2023, 2024 and inflation falling back below the 2.0% target.