However, the actual trade-off that is struck will be importantly influenced by MPC members’ views of both the nature of the shocks hitting the economy and the transmission mechanism of monetary policy.17  As the remit states: “In exceptional circumstances, shocks to the economy may be particularly large or the effects of shocks may persist over an extended period, or both. In such circumstances, the Monetary Policy Committee is likely to be faced with more significant trade-offs between the speed with which it aims to bring inflation back to the target and the consideration that should be placed on the variability of output.” 17 For more detail, see ‘Lambda’, speech by Mark Carney at the London School of Economics, 16 January 2017. 16  15  All speeches are available online at www.bankofengland.co.uk/news/speeches  15  Charts 10a and 10b demonstrate how the expected trade-off evolved in successive MPC forecasts since the referendum.
As a consequence, the MPC began to remove some of the policy stimulus, raising Bank Rate from ¼% to ½% in November 2017 and then to ¾% in August 2018 where it has remained since. 20  This comprised: a 25 basis point reduction in Bank Rate to 0.25%; a Term Funding Scheme to reinforce the pass-through of that cut to the borrowing rates faced by households and companies; £ billion of gilt purchases; and £ billion of corporate bond purchases. 21 The FPC cut the counter-cyclical capital buffer rate to zero, increasing credit availability by up to £ billion; emphasised that banks’ liquidity reserves are usable; and amended the leverage ratio framework for UK banks by excluding central bank reserves. The PRA Board used regulatory flexibilities to smooth insurers’ transition to new regulatory standards in a very low interest rate environment. 22 This estimate is based on the approach to construct a “synthetic” measure of UK GDP described in ‘The Economic Outlook: Fading global tailwinds, intensifying Brexit headwinds’, speech given by Gertjan Vlieghe at the Resolution Foundation, 14 February 2019. 23 Figures are for whole economy average wages excluding bonuses (“regular pay”).