UK Interest Rate/Inflation rolling 5 year correlation

Steady decline of correlation between inflation and BOE overnight rates.

In 1980 the five year correlation of interest rate movements with inflation was 0.75, quite a strong correlation. Over time that correlation has significantly weakened.

The implication is that the Bank Of England is no longer using Inflation as it’s primary determinant of interest rates. Rather some other factor (be it employment, asset prices, exchange rates) is now the determining factor of UK interest rates.

Screenshot 2018-01-27 at 17.34.13

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