Yesterday, the 23rd of July, deputy governor of monetary policy at the Bank of England Ben Broadbent said that if the Monetary Policy Committee (MPC) starts to normalise its balance sheet - which has increased as a result of quantitative easing – and inflationary pressure eases, the first call of order would be to lower interest rates rather than stop the process of tapering the balance sheet.
Speaking at a meeting of the Society of Professional Economists in London, Mr. Broadbent shed some light on the MPC’s procedure for normalising the central bank’s balance sheet. He reckons that the BoE will start selling off the assets purchased as part of the QE program once the key rate reaches 1.5%, rather than 2.0% as had been the previous target. He also said that the MPC is keeping a close eye on the US Federal Reserve’s quantitative tightening initiative and that the Bank of England will draw on that experience.
As such, we can conclude that when the BoE starts its quantitative tightening process, if economic growth slows down and/or inflationary pressure subsides, the regulator will keep this process going and lower interest rates.