Drift in data has been more to pessimistic side, says Bank of England MPC's Alan Taylor
It was perhaps unsurprising that his first speech as a member of the Bank of England’s Monetary Policy Committee should contain a reference to his Yorkshire childhood in a mining community which must have been shaken by the economic storms of the time.
He told the audience at Leeds University Business School: “I will end with an old Yorkshire saying, passed down in many a mining family like mine: “it all comes off t’ pick point.”
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Hide Ad"What’s that? This expression embodies a basic, common-sense economic concept: the resource constraint. The hard-won wages of piece work basically have to line up with household expenses, sooner or later. If some sudden essential costs rise, like taxes or debt service, then something else has to give.”


In hard times incomings will have to match outgoings pretty tightly. Cautious households and businesses will adjust their budgeting. The resource constraint feels tighter.
"That is the nub of a cashflow squeeze,’’ he added. “Whether you were hewing away at a coal seam in the 1930s, or you are now drawing a wage packet or pension, or running a large factory or a small business – it’s still the same math, a grinding hand-to-mouth logic. It means having to manage carefully your budgets wherever you are on today’s economic coalface.”
He told the audience of academics and business leaders: "I fully appreciate these challenges for businesses and households and the headwinds they pose for the UK economic outlook, together with all the other emerging downside economic risks in the UK and around the world. Right now, I think it makes sense to cut rates pre-emptively to take out a little insurance against this change in the balance of risks, given that our policy rate is still far above neutral and would still remain very restrictive.”
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Hide AdWakefield-born Professor Taylor, who is now Professor of International and Public Affairs at Columbia University in the US, told The Yorkshire Post he had childhood memories of a time when inflation was very volatile and unemployment kept on rising.
He added: "As a kid, I didn't have the opportunity to take an economics course, but I was listening to news on the radio and TV and trying to make sense of it.
"There were some historical shocks in the 1970s that we're still talking about today. This was happening in front of you in real time; it seemed consequential. Around the kitchen table, we would be talking about comparisons with what hit the economy in the 1930s when my parents were growing up."
This, he said, gave him an awareness that the world can be hit with big economic shocks.
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Hide Ad“It can have long lasting effects,’’ he added. "You saw people struggling with it (high inflation in the 1970s) and it became a topic of concern and anxiety.
"You knew it was real and consequential,’’ he added. “There's a reason we have an inflation target today. We've all learned across the world that it's an experience we don't want to see repeated. It's destabilising and people don't want to go there again.”
"The cases I presented (in the speech) reflect uncertainty,’’ he added. “We could have potentially unfavourable developments; if there were to be, for example, a big energy shock, or even a small one that would represent a setback. We could also have developments that bring inflation down more rapidly; some of those include the negative shocks to demand, which we have seen recently.
"But there are other things that are potentially coming out of left field in a global environment, such as trade policy and geopolitics, which are very unpredictable. The key thing I'm trying to communicate in the speech is that there is a lot of uncertainty. The drift in the data recently has been more to the pessimistic side and we need to be very alert to directional risk both ways.”
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Hide AdProfessor Taylor said he didn't want to speculate on what the new Trump administration might do in the US. However, he did provide analysis on the potential economic impact of tariffs.
"Tariffs can operate through many different channels,’’ he said. “The direct effect will be to restrict the movement of goods into the country imposing tariffs. That means the goods will find a home elsewhere. That direct effect will be one of trade diversion. If that materialises that will be bearing down on inflation but we will also have other effects like tariffs policy would possibly disturb the exchange rate and that could move in the opposite direction. Overall it's hard to make a forecast of what the overall impact would be. All this is completely unknown and adds to all the other uncertainty."
He said the Bank of England was unusual among central banks in having a network of regional agents. He clearly values the insights gained by the teams based in places like Leeds, where the Bank has committed to a headcount of at least 500 staff by 2027.
He said the agents acted as the Bank’s eyes and ears; collecting data, running surveys and talking to businesses.
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Hide Ad"That's a huge amount of extra information,’’ he added. "It's very important for policymakers to have that information flow in real time; particularly at the point of uncertainty where the economy might go down different paths.
"As a policymaker you're wanting to see where we are now and where we are going in the future. But a lot of your data is backward looking. The regional network gives you an extra sense of what is happening. In the past, particularly during the global financial crisis, the MPC did find it invaluable to have information from people on the ground and to hear what businesses were saying. It's been proven to have value, especially in uncertain moments."
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