Do financial markets react to Bank of England communication?

Abstract

This paper examines how United Kingdom financial markets react to Bank of England communication. We might expect asset prices to react to official communication if it is informative to market participants about the policy inclination or economic outlook and risks. We find evidence that the publication of the Minutes of Monetary Policy Committee meetings and the Inflation Report significantly affect near-term interest rate expectations, an effect particularly visible in intraday data. Our results for the United Kingdom are arguably less strong than Kohn and Sack's [Kohn, D., Sack, B., 2003. Central bank talk: does it matter and why? Federal Reserve Board Finance and Economics Discussion Series 2003–55] findings for United States Federal Reserve communication, where the impact extends along the yield curve. Although differences in institutional frameworks between the United Kingdom and United States mean communications are not directly comparable, our results might also reflect the different mandates of the FOMC and the MPC, with the Federal Reserve having greater freedom to interpret its objectives.