Deciphering Delphic Guidance: The Bank of England and Geopolitical Uncertainty

Jagjit S. Chadha, Corrado Macchiarelli, Satyam Goel, Arno Hantzsche and Sathya Mellina

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: The effective transmission of monetary policy can be hampered by geopolitical uncertainty, at times necessitating central banks to adapt their tools and communication strategy in order to anchor market expectations. The UK 2016 referendum on EU membership is a prominent example of geopolitical uncertainty, manifested as an historic event. Accordingly, this paper examines how the Bank of England (BoE) adjusted their response, including through conventional, unconventional monetary policy measures and communications. We use text-based analysis of Monetary Policy Committee (MPC) summaries and minutes to measure the stance of policy, QE-related news and geopolitical uncertainty. To investigate the impact of central bank communication, we then decompose long-dated yields into a risk-neutral and term premium component and analyse the dynamic response to MPC communications. We show that the Bank's communication strategy acted to complement the stance of monetary policy, which had responded to the result of the referendum by lowering Bank Rate and expanding QE, and helped lower the term premium that might otherwise have risen in response to this example of geopolitical uncertainty.

Keywords: UK Referendum; Geopolitical Uncertainty; Risk Premium; Monetary Policy; Central Bank Communication; Text Mining (search for similar items in EconPapers)
JEL-codes: E32 E43 E44 E52 (search for similar items in EconPapers)
Date: 2026-02-02
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:2606

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