, in line with our key principle that bank rate is the active tool, the mpc is not using qt to signal the future path of bank rate and so materially change expectations of policy rates, so there is no socalled ‘ signalling channel ’. second, by conducting qt carefully when market conditions are not stressed, the liquidity and market function channels of qe are likely to be minimised during qt. the empirical evidence we have so far supports the theory : the overall impact of qt on gilt yields appears to have been small. that is particularly the case in the context of the very much larger developments in the outlook for our active policy tool, bank rate. to illustrate that, chart 2 shows that the vast majority of the ~ 300bps increase in uk 10 - year gilt yields since february 2022 ( when maturing gilts stopped being reinvested ) has been driven by increases in expected policy rates. as discussed above, our qt strategy contains no upward signal on the path of rates. instead, the key driver of yields over this period has been the evolving outlook for inflation and hence the expected path for bank rate. ( a ) the chart uses estimates from a range of internal models of uk term premia to split the 10 year gilt yield into expected rates and term premia contributions. expected rates reflect investors ’ expectations of the average short - term monetary policy rate over the next 10 years, and term premium is defined as the additional compensation investors demand to hold a longer - term bond relative to a series of shorter - term bonds. sources : bloomberg finance l. p, tradeweb and bank calculations. in contrast, we estimate that term premia have increased by only around 40bps in the period since qt began. qt may of course be one contributing factor to this much smaller component – for example, any portfolio balance channel of qt would be expected to show up in the term premia. but qt is unlikely to be the major driver of this component either. term premia will also reflect the increase in uncertainty around the outlook for the economy and rates and also the material increase in dmo issuance. our market intelligence suggests that qt, while likely having some impact on yields, has had a relatively small role to play. for example, in the june 2022 market participants survey, conducted by the bank, the median respondent reported that qt expectations had pushed up uk gilt yields

should be set jointly, taking into account all the collective objectives at once. the only question is how large the costs of decentralised decision - making are and what might be done to mitigate them. in fact, the more one reads of this stuff, the more puzzling it becomes that policies aren ’ t more often coordinated. economics is a positive as well as a normative science. much of it seeks to explain why things are as they are. and if there ’ s only upside to policy co - ordination, why isn ’ t there much more of it? why, indeed, isn ’ t there just one, all - powerful decision maker in charge of everything? in the case of international co - ordination, perhaps the answer ’ s obvious : only countries are wholly sovereign. that hasn ’ t prevented all sorts of other mechanisms for joint decision making, whether in trade, all speeches are available online at www. bankofengland. co. uk / speeches defence or environmental policy, to name a few. but in some areas there are limits to the extent to which national sovereignty can be compromised and, as the current debates in the euro area illustrate, fiscal policy may be one of them. when it comes to decisions about fiscal and monetary policy, we know there ’ s a positive reason for separation. it ’ s harder for governments to commit to a fixed nominal objective. because the gains from commitment are significant, it makes sense to delegate monetary policy to an independent body. ( though it happened later than in many other countries, i would argue strongly that its separation from the government – first via the introduction of inflation targeting in 1992 and then thanks to the creation of an operationally independent mpc in 1997 – has led to much improved monetary policy in the uk. ) i also think there ’ s an additional justification for separation in many of these cases, and for monetary and macro - prudential policies in particular. it ’ s essentially a matter of accountability11. i think there ’ s little doubt that, over any limited period of time, monetary stability is more easily measured than financial stability. the mpc ’ s primary target is inflation, as measured by the rate of change of the consumer prices index. we get to see the cpi every month, it ’ s never revised, and it ’ s therefore reasonably clear over time whether the target has been reached. judging the mpc ’ s performance is in reality a little more complex than this. policy takes time to work,