In a speech, BoE MPC member Catherine Mann said, “inflation today does not simply depend on past inflation but depends as well on markets, firms, and household’s expectations, and crucially, how these expectations react to each other, are formed over time, and interact with our and others’ policy choices. ”

“In this more complex and arguably more realistic and relevant version of the inflation model, a fast and forceful monetary tightening, potentially followed by a hold or reversal, is superior to the gradualist approach.”

“This policy strategy would reduce the risks of a more extended and costly tightening cycle later that depends primarily on shrinking aggregate demand.”

Full speech here.

BoE Chief Economist Andy Haldane said today that March contraction in the economy was probably enough to cause an overall GDP contraction in Q1. Further, Q2 is likely to bring a “very sharp contraction” too.

He said that there are “real limits” to what public policy could do to offset the economic impacts from coronavirus containment. “Even after those policies are relaxed, there is certainly a chance that people might be reluctant themselves to want to spend too vigorously, or to go out and socialise too much,” he added.

Haldane noted, “there will certainly be some recovery, there will certainly be a bounce. Will it bounce back immediately…? That is an open question.”

BoE Governor Andrew Bailey said in an interview with Daily Mail that there are a number of “bottleneck” in the system, so that not enough finance has gone through to small firms in the coronavirus crisis. Only around GBP 2B has been lent to companies under the Covid Business Interruption Loan scheme.

He noted it’s hard for banks to deal with a huge surge in loan demands, at a time when their staff are having health struggles. It’s also difficult to assess the risk with the loans to small firms. Bailey added, “this gums up the operational side. It is clearly not satisfactory and [the system] clearly needs to be un-gummed. I gee up the banks regularly. The Chancellor and I are both extremely keen that credit flows to firms.”

Regarding lockdown exit, “I think we have to be careful when thinking about human psychology,’ he said. ‘If we had a lifting and then [lockdown] came back again, I think that would damage people’s confidence very severely.”

BoE MPC member Catherine Mann said yesterday that she’s “worrying about… underlying inflation dynamic looks pretty robust right now.” She explained that past rises in energy prices and other inflationary pressures are getting passed through higher prices of other goods and services.

“Our job is to bring that back to 2%.” She added that may require a “significant recession”. But, “getting inflation expectations under control, keeping them under control, is important.”

“Nobody likes to have higher interest rates. but nobody likes to have double digit inflation either,” Mann said.