Recommendations & Conclusions
9 items
1
Conclusion
Fifth Report - Quantitative Tightening
Accepted
There are a variety of views about the desirability of the Bank of England undertaking quantitative tightening (QT), whether it has a good strategic framework for doing so, and whether it is conducting QT at an appropriate pace. Nonetheless, much of the evidence we have received suggests that the Bank’s …
Government response. The Bank welcomes the committee's finding that its strategic framework for QT is broadly reasonable and reiterates its existing strategy, guided by three key principles, for unwinding asset purchases.
HM Treasury
2
Conclusion
Fifth Report - Quantitative Tightening
Accepted
Since it has some bearing on our later conclusions, we note here that the Bank and Monetary Policy Committee (MPC) have determined: that QT is not being used as an active tool of monetary policy; that they are calibrating QT in order to minimise its economic and financial impacts; and …
Government response. The government's response outlines the MPC's existing strategy for unwinding asset purchases, guided by principles such as using Bank Rate as the primary tool and conducting QT gradually. They explain that the MPC's framework for monetary policy is robust and …
HM Treasury
4
Recommendation
Fifth Report - Quantitative Tightening
Accepted
The Bank should develop its planning on this long-term steady-state size and composition of its balance sheet, and how this relates to QT, in more detail and give regular public updates on the likely future size and composition of its balance sheet. (Paragraph 23) The macroeconomic and financial impact of …
Government response. The government states the Bank is continuing to analyse the optimal steady-state level of reserves and is undertaking work to determine the long-term mix of assets for its balance sheet. Decisions on its future size and shape will be made …
HM Treasury
5
Conclusion
Fifth Report - Quantitative Tightening
Accepted
QT is a comparatively untested monetary policy tool, and it is understandable that the Bank would find it challenging to model its effects as part of its forecast. We have seen supporting evidence for the Bank’s contention that it is having and will have a small impact on the economy. …
Government response. The government explains that the MPC already takes QT's impact into account through asset price assessments, annual reviews, and regular monitoring in reports and minutes. They state that Bank staff use various modelling tools and conduct quantitative analysis to estimate …
HM Treasury
7
Conclusion
Fifth Report - Quantitative Tightening
Accepted
There are no clear signs that QT has resulted in financial stability issues to date, either in the gilt market or more widely. We also recognise that bringing down the share of gilts owned by the Bank in favour of the private sector could improve liquidity in financial markets. Nonetheless, …
Government response. The government explains that the Bank and FPC are already taking action to protect financial stability, including providing facilities for non-bank institutions and addressing market dysfunction. They clarify that QT is conducted for monetary policy, designed to be gradual and …
HM Treasury
11
Recommendation
Fifth Report - Quantitative Tightening
Accepted
We recognise that QE and QT are processes already well in train, and it may not be possible to make large changes to the arrangements made in 2009 and 2012 without impacts on the credibility of the UK macroeconomic framework. However, as we have noted, the Bank is undertaking QT …
Government response. The government clarifies that future QE would not proceed automatically, as the Chancellor must authorise APF increases based on value-for-money assessments and Accounting Officer advice. It commits to keeping its approach to managing cashflows under review and considering lessons learned …
HM Treasury
13
Recommendation
Fifth Report - Quantitative Tightening
Accepted
That being so, while it is right that MPC members should have monetary policy and the inflation target foremost in their thinking and decision-making, the Bank and Treasury should explore how criteria on value for money and the spending power of the Treasury could be included in decisions about the …
Government response. The government clarifies that while MPC decisions are independent, the Bank's operational implementation of QT already prioritizes value for money by minimising cost and risk over the APF's lifetime, subject to MPC objectives, through mechanisms like auction design.
HM Treasury
16
Conclusion
Fifth Report - Quantitative Tightening
Accepted
The Chancellor’s role in approving changes in the size or composition of the APF that houses the QE and QT programme remains unclear to us, since on one hand the Chancellor insists that decisions over QE and QT are taken independently by the MPC and cannot be commented upon, while …
Government response. The government clarifies the Chancellor's role, explaining that while the MPC maintains operational independence, the Chancellor's authorisation for APF indemnity relates to Treasury's responsibility for public funds, involving assessments of fiscal and macroeconomic impacts.
HM Treasury
17
Recommendation
Fifth Report - Quantitative Tightening
Accepted
The Treasury should clarify whether the Chancellor’s authorisation of changes to the APF involves a substantial decision or is only a formal endorsement of the MPC’s decision, and explain the extent of the assessment of macro-economic and fiscal impacts that accompanies each authorisation. In particular, the Treasury should confirm whether …
Government response. The government clarifies that the Chancellor's authorisation of APF changes focuses on the increased contingent liability and supports MPC independence, with risk assessment differing for expansion versus unwind. It confirms that decisions to approve indemnity increases are made case-by-case based …
HM Treasury