The Bank of England has published Staff Working Paper No. 1,194, which examines how central bank policy messages reach households and affect one-year-ahead inflation expectations. Using text from central bank announcements and pre-announcement newspaper coverage for the Bank of Canada, the Bank of England and the Federal Reserve, the paper constructs communication shocks that reflect how households encounter policy messages through the media rather than through financial market prices alone. It finds that central bank narratives influence subsequent media coverage and that tighter stance communication lowers household inflation expectations, while information-based communication that signals stronger economic conditions raises them. The paper separates narrative surprises into stance and information communication shocks and concludes that this decomposition is needed to produce responses that are consistent with theory. In the baseline results, a tightening stance shock lowers household inflation expectations by about 0.1 percentage point and the effect persists for several months. For the United Kingdom, information communication shocks also raise expectations by around 0.1 percentage point at their peak. The research further finds that roughly 30% to 60% of central bank narrative surprises pass through to media coverage, that communication shocks explain about 10% of unexplained variation in household inflation expectations at a 12-month horizon in the United Kingdom and the United States, and that the effects are generally stronger when household attention to monetary policy and inflation news is high.
Bank of England2026-07-10
Bank of England staff working paper finds central bank communications can shift household inflation expectations through media narratives
The Bank of England published a staff working paper finding that central bank communications can reach households through newspaper narratives and move one-year-ahead inflation expectations. The research shows tighter stance communication lowers expectations, while information communication can raise them, especially when public attention is high. It also finds conventional asset-price-based monetary policy shocks do not capture these household responses as effectively.