Second, I worry that taking unusually large policy steps may validate a market narrative that Bank policy is either foot-to-the-floor on the accelerator or foot-to-the-floor with the brake. This narrative was fuelled by the (perhaps necessarily) activist responses to the onset of global financial crisis and pandemic.26 It is not unique to the UK. In my mind, the perceptions underling this narrative may help to explain both markets’ reluctance to price in policy tightening in the middle of last year and the subsequent relatively rapid steepening of the money market yield curve of late as central banks have embraced the need to address inflationary pressures. And such perceptions can shape reality. If such swings in market sentiment and expectations were to weaken central banks’ ability to steer the market rates of most relevance to spending and investment decisions, then the transmission of monetary policy will be at risk. Of course, there may be occasions where aggressive monetary policy actions are necessary. Recent history is littered with them: the global financial crisis and onset of the pandemic are cases in point. I would certainly not wish to rule out changes in Bank Rate of more than the usual 25bp in all circumstances. 13  All speeches are available online at www.bankofengland.co.uk/news/speeches  13  Retaining flexibility is important. And given the inflationary pressures we currently face, I can certainly understand why colleagues on the MPC voted for a 50bp hike last week.
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