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