Michael Saunders gave a speech reflecting on monetary policy past, present, and future. He made four key points: 1) Adverse shocks have reduced potential growth and lifted inflation. 2) MPC members sometimes reasonably disagree on policy decisions given challenging economic outlooks. 3) UK faces increasing challenges from demographic trends that will lower workforce and potential growth. 4) Some further monetary tightening is likely in the coming months to ensure inflation returns to the 2% target on a sustained basis.

1. Speech at the Resolution Foundation – 18th July
Some Reflections on
Monetary Policy Past,
Present and Future –
speech by Michael
Saunders

2. • Series of adverse shocks have significantly reduced potential growth and lifted inflation.
• Not surprising that MPC members sometimes disagree on the appropriate policy
decision, especially when the economic outlook is challenging.
• UK economy is starting to face increasing challenges from demographic trends – likely
to cause persistently low workforce growth and further reduce potential growth.
• Some further monetary tightening remains likely in coming months in my view, to ensure
that inflation returns to the 2% target on a sustained basis.
Four key messages
Some Reflections on Monetary Policy Past, Present and Future

3. UK – Potential GDP (indexed to 1997 Q1 – 100)
Some Reflections on Monetary Policy Past, Present and Future
Sources: ONS and Bank of England.
100
150
200
250
1997 2000 2003 2006 2009 2012 2015 2018 2021 2024
Potential GDP (May 2022 MPR Forecast)
Potential GDP Trend 1997Q2-2007Q2 (2.6% YoY) Extrapolated
Potential GDP Trend 2009Q4-2018Q4 (1.7% YoY) Extrapolated
Actual GDP
Forecast Potential GDP Trend
2022Q2-2025Q2 = 1.2% YoY

4. Selected Countries – Per Cent of Central Bank Policy Votes That
Dissent from Majority
Some Reflections on Monetary Policy Past, Present and Future
Sources: Bank of England, US Federal Reserve, Bank of Japan, Sveriges Riksbank, Czech National Bank, Magyar Nemzeti Bank and Central Bank of Iceland.
0
5
10
15
20
25
1998-Now 1998-2005 2006-2013 2014-Now
Bank of England US Federal Reserve
Bank of Japan Sveriges Riksbank
Czech National Bank Magyar Nemzeti Bank
Central Bank of Iceland
%

5. UK – % of Adult Population Aged 20-64 Years, and Effects of
Population Ageing on Participation
Some Reflections on Monetary Policy Past, Present and Future
Sources: ONS and Bank of England.
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
64
66
68
70
72
74
76
1971 1981 1991 2001 2011 2021 2031 2041
20-64 Year Age Population as Pct Adult Population
(left)
Effects of Population Ageing on Participation Since
1971 (right)
% pp
Projection

6. UK – Workforce Participation Rate and Education Attainment of
People Aged 25-59 Years
Some Reflections on Monetary Policy Past, Present and Future
Sources: ONS and Bank of England.
70
75
80
85
90
95
All Degree Higher Secondary GCSE, Other,
Unknown
2001 2011 2021
%
Highest Level of Education Attainment

7. UK – Decomposition of Changes in Workforce Participation Rate
(for 16+ population) since 2008, and Simulation to 2032
Some Reflections on Monetary Policy Past, Present and Future
Sources: ONS and Bank of England.
-6
-5
-4
-3
-2
-1
0
1
2
3
4
2008 2012 2016 2020 2024 2028 2032
Other Changes in Participation
Effect of Change in State Pension Age
Effect of Education Attainment
Effect of Population Ageing
Total Change in Participation
pp
Simulation

8. UK – YoY Change in Population by Age Group
Some Reflections on Monetary Policy Past, Present and Future
Sources: ONS and Bank of England.
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1970 1980 1990 2000 2010 2020 2030 2040 2050
Population Aged 16+ Years
Population Aged 20-64 Years
% ONS Projection

9. UK – Actual Workforce Path and Simulations, Indexed to 2008 = 100
Some Reflections on Monetary Policy Past, Present and Future
Sources: ONS and Bank of England.
100
105
110
115
120
125
2008 2011 2014 2017 2020 2023 2026 2029 2032
Actual Workforce
Workforce 2009-19 Trend Extrapolated
Simulation (50% Recovery in Participation)
Simulation With No Rebound in Participation
Simulation With 100% Rebound in Participation
Indexed to 2008 = 100

10. UK – Decomposition of Potential GDP Growth
Some Reflections on Monetary Policy Past, Present and Future
Sources: ONS and Bank of England.
0
0.5
1
1.5
2
2.5
3
1990-99 2000-09 2010-19 2020-22
(expected)
2023-24
(forecast)
Potential GDP Growth
Equilibrium Employment
Output Per Person
%

11. UK – Measures of Service Sector Inflation
Some Reflections on Monetary Policy Past, Present and Future
Sources: ONS and Bank of England.
0
1
2
3
4
5
6
CPI Services
YoY%
Core CPI
Services YoY%
Median CPI
Services YoY%
Median CPI
Services Ex
EOHO and VAT
YoY%
Services
Producer Prices
YoY%
Agents Scores --
Consumer
Services Prices
Agents Scores --
B2B Services
Prices
2018-19 2020 H1 2021
H2 2021 Q1 2022 Q2 2022

12. UK – Longer-term Inflation Expectations
Some Reflections on Monetary Policy Past, Present and Future
Sources: ONS, YouGov/Citigroup and Bank of England.
2.0
3.0
4.0
5.0
2005 2007 2009 2011 2013 2015 2017 2019 2021
Household Inflation Expectations
Financial Market Breakevens
2006-19 Average for Financial Market Breakevens
2006-19 Average for Household Inflation Expectations
%

13. UK – Change in Bank Rate and Forward Rates in Prior and Current
MPC Tightening Cycles
Some Reflections on Monetary Policy Past, Present and Future
Sources: Eikon from Refinitiv and Bank of England.
-0.75
-0.5
-0.25
0
0.25
0.5
0.75
1
1.25
1.5
1.75
2
-0.5
-0.25
0
0.25
0.5
0.75
1
1.25
1.5
1.75
2
-3 0 3 6 9 12 -3 0 3 6 9 12
Bank Rate 2 Years Forward 5 Years Forward 10 Years Forward
pp
Months Before/After First Rise in Bank Rate
Average of Prior MPC Tightening Cycles Current Cycle
pp

14. Questions?
Some Reflections on Monetary Policy Past, Present and Future