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BoE's Mann says "A tighter monetary policy stance could trigger volatility as the new actors unwind positions, potentially leading to tighter domestic financial conditions than intended"

Mann's comments highlight the BoE's cautious stance on monetary policy amidst rising geopolitical risks and persistent inflation.

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BoE's Mann says "A tighter monetary policy stance could trigger volatility as the new actors unwind positions, potentially leading to tighter domestic financial conditions than intended"

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  • "...recent geopolitical events have only reinforced how exposed the UK economy is to international shocks that might require a domestic policy response."
  • Since August 2025, "inflation has remained above target, economic growth has been modest, and unemployment has gone up. In light of the recent energy price shock, the inflation-output trade-off and the associated monetary policy response has become even more difficult, especially as monetary policy cannot offset such cost-push shocks."
  • "Compared to the Monetary Policy Report in February 2026, the contribution of energy components to CPI inflation picked up in March 2026 and is projected to increase further..."
  • If a new shock were to occur and weigh on investor confidence, internationals could reduce gilt holdings, resulting volatility in yields could be reflected in a persistent risk premium on Gilts.
Context

A tighter policy could inadvertently lead to volatility in the market as investors adjust their positions, which may tighten financial conditions more than intended, complicating the trade-off between inflation control and economic growth.

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