Latest oil price decline brings positive news, Bailey says in speech

The policy rate has risen to 4%. Following the November meeting decision to raise it by 25 basis points (bps), Bank of England (BoE) Governor Andrew Bailey outlines the policy outlook and takes questions from the press.

Policy outlook highlights

"Market curve prices further restrictiveness into next year, but this largely reflects risk premia, not expected rates, this seems fair reflection of energy risks."

"Latest fall in oil prices is positive news."

"Unless there is progress towards resolving conflict, further increase in bank rate may be warranted."

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

"Good news on Iran conflict would reduce risk of further inflation pressures, could lead to CPI peak somewhat below 5%."

"Had we known what would happen in last 48 hours, rate decision would still have been the same."

"If we do see a peace process, that would be a good thing and lower energy prices."

BoE: Frequently asked questions

The Bank of England’s role and its impact on the Pound

A steady inflation rate of 2% is the Bank of England’s primary objective, known as ‘price stability’. The Bank of England (BoE) sets monetary policy for the United Kingdom, using adjustments to base lending rates to pursue that goal. By setting the rate for its lending to commercial banks and for lending between banks, it determines interest rates across the wider economy. The value of the Pound Sterling (GBP) is also affected.

BoE monetary policy and its influence on Sterling

Above-target inflation prompts the Bank of England to raise interest rates, increasing borrowing costs for households and businesses. Higher rates support the Pound Sterling by making the UK a more attractive destination for global investors’ money. Below-target inflation, by contrast, signals slower economic growth. The BoE will then consider cutting rates to make credit cheaper, hoping businesses will borrow to fund projects that generate growth. Such a move is negative for the Pound Sterling.

Quantitative Easing (QE): How it works and affects the Pound

When rate cuts cannot deliver the required result, the Bank of England can turn to Quantitative Easing (QE) as a last resort in extreme circumstances. This policy substantially expands credit flows through a stalled financial system. To carry it out, the BoE prints money and buys assets from banks and other financial institutions, usually government bonds or AAA-rated corporate bonds. The Pound Sterling typically weakens as a result of QE.

Quantitative tightening (QT): Its role and impact on the Pound Sterling

As the economy strengthens and inflation begins to rise, Quantitative tightening (QT) reverses QE. Under QE, the Bank of England (BoE) buys government and corporate bonds from financial institutions to encourage lending. Under QT, it halts further bond purchases and no longer reinvests the principal repaid as its existing bond holdings mature. The Pound Sterling usually benefits from QT.