BoE's Breeden: 'No evidence' quantitative tightening poses risk to financial stability

investmentweek.co.uk:

Governor Andrew Bailey showed optimism around the economy, restating the need for inflation to get back to the bank's 2% target to maintain financial stability.

Speaking at a Treasury Select Committee hearing yesterday (10 January), Breeden confirmed the central bank will be selling £100bn worth of gilts this year.

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Although she said the QT programme might have an impact on markets, as the sale of gilts could affect yields, Breeden argued this was a «relatively small» impact as the bank rate is the «main tool» used by the BoE to ensure the right monetary conditions exist in the economy.

She noted market functioning is taken into account by the monetary policy committee when considering the QT programme and, so far, there has been no impact on market functioning nor financial stability from quantitative tightening.

The only exception to this, Breeden noted, were the events which followed the Mini Budget of September 2022.

Since the central bank started its QT programme, she said there was «no evidence» it has created problems for markets or banks.

Overall, BoE governor Andrew Bailey showed optimism around the economy, restating the need for inflation to get back to the bank's 2% target to maintain financial stability.

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He noted there have been some «mitigating factors» for the economy that had not been seen in past events, including the lack of a profound increase to unemployment — as it historically drives loan losses in the mortgage market — and a 2% increase in household real income last year, which is supporting financial stability.

Bailey added there is currently «less