STANCE WORKING · October 2026
How the policy stance is measured
The neutral rate r*, the estimators behind it, and how they compare with published estimates.
THE NEUTRAL RATE
How r* is estimated
No single estimate of the neutral rate is reliable, so r* is a weighted suite of estimators, following central-bank practice, and the neutral zone is their range. Stance is in percentage points and never coloured, because "up" means tight, not inflationary.
| Component | Value | Date | Basis |
|---|---|---|---|
| Bank Rate | 3.75% | 15 Oct 2026 | Bank of England |
| − Expected inflation | 2.6% | MPR July 2026 year-ahead CPI projection | |
| = Real rate | 1.15% | ||
| r*, suite headline | 1.00% | Weighted suite of estimators, rounded to 0.25pp | |
| Neutral zone | 0.4 to 1.4% | Range of the weighted estimators, at least 0.5pp wide | |
| Gap: real rate − r* | +0.15pp | Neutral |
The r* suite
| Estimator | Real | Nominal | Date | Horizon | Weight | Basis and status |
|---|---|---|---|---|---|---|
| Trend-cycle model | 1.25% | 3.25% | 2026Q3 | long-run | 0.53 | Del Negro et al.-style: common trends in Bank Rate, CPI inflation and 10-year nominal and real gilt yields. ok |
| HLW-style model (repaired) | 2.58% | 4.58% | 2025Q4 | policy horizon | 0.00 | IS/Phillips curves; λz = 0 (Buncic 2022), COVID and lower-bound variance scaling; IS slope -0.003. excluded: IS slope at its bound, so r* is not identified (as the NY Fed found for the UK) |
| Market Participants Survey | 0.65% | 2.65% | 2026-09 | policy horizon | 0.47 | median perceived neutral Bank Rate (3.25%) minus expected inflation (2.60%, MPR year-ahead projection): the same deflator as the policy rate. ok |
| Index-linked gilt 5y5y real forward | 2.62% | 4.62% | 2026Q3 | long-run | 0.00 | Bank of England real spot curve; includes term and liquidity premia, CPIH basis after 2030. shown, not weighted (term premia) |
| 10-year average real Bank Rate | −0.53% | 1.47% | 2026Q2 | benchmark | 0.00 | Bank Rate minus households' 1-year expectations (re-centred), trailing 40 quarters. shown, not weighted (benchmark) |
r*: the trend-cycle estimate and the gilt market
Real, %. Line: index-linked gilt 5y5y real forward (includes term premia). Dashed with band: trend-cycle r̄ ± 1 s.e.
Published estimates of r* for comparison (real, %)
| Who | r* | Date | Source |
|---|---|---|---|
| Alan Taylor | 1.00% | Sep 2026 | MPC minutes Sep 2026 (member view) |
| Alan Taylor | 1.00% | Jun 2026 | Speech 'Central reservations' (Barclays/CEPR) |
| Alan Taylor | 1.00% | Jun 2026 | MPC minutes Jun 2026 (member view) |
| Alan Taylor | 1.00% | Apr 2026 | MPC minutes Apr 2026 (member view) |
| Dave Ramsden | 1.00% | Feb 2026 | MPC minutes Feb 2026 (member view) |
| Alan Taylor | 1.00% | Feb 2026 | MPC minutes Feb 2026 (member view) |
| Alan Taylor | 1.00% | Dec 2025 | MPC minutes Dec 2025 (member view) |
| BoE staff | 1.00% | Nov 2025 | MPR Nov 2025 Annex 1 (policy rules) |
| Alan Taylor | 0.25 to 1.25% | Jul 2025 | Speech 'The end of the road' (LSE) |
| Alan Taylor | 0.75 to 1.00% | Jul 2025 | Speech 'Unexpected curves' (ECB Sintra panel) |
| BoE staff/MPC | 0.00 to 1.00% | Feb 2025 | MPR Feb 2025 Box A |
| Alan Taylor | 0.50 to 1.00% | Jan 2025 | Speech 'The last half mile' (Leeds) |
| Swati Dhingra | 0.50 to 1.50% | Dec 2024 | Bloomberg interview (SECONDARY source) |
| Market participants (median) | 1.25% | Mar 2024 | MaPS survey via MPC minutes Mar 2024 |
Hand-maintained in manual/rstar.csv. Nominal figures are converted to real by subtracting 2.
The suite is re-estimated weekly; method and evidence are in reports/UK neutral rate estimation methods.md.
The Market Participants Survey reports the neutral Bank Rate in nominal terms; it is converted to real with the same year-ahead expected inflation as Bank Rate. The gilt forward includes term and liquidity premia and is shown only. Source: Bank of England (yield curves, Market Participants Survey, Inflation Attitudes Survey); Office for National Statistics; Monetary Space estimates.