Why Bank of England is right to focus on cashflow squeeze: Greg Wright
Although he has spent most of his adult life in the United States, Professor Taylor still has a deep affection for Yorkshire.
He felt great pride in delivering his first speech as a Bank of England Monetary Policy Committee member at Leeds University Business School, just a few miles from the mining village where he grew up.
Advertisement
Hide AdAdvertisement
Hide AdHe left his audience with plenty of food for thought. Professor Taylor’s view is that the risks around inflation have shifted in the last 12 months.


Inflation moderated faster than expected in 2024, and aside from one-time tax shocks and various base effects which Bank of England forecasts show will push upwards on inflation in 2025, he said he would expect the underlying trend of inflation to remain on track towards the 2 per cent target from now on.
Although the road to normalisation will be bumpy, we have moved along much closer to the end point; the last half mile, according to Professor Taylor.
However, the most recent data and forward-looking activity indicators present an increasingly gloomy outlook for 2025.
Advertisement
Hide AdAdvertisement
Hide AdThe labour market is near balance, but is still loosening at pace, GDP growth appears to have ground to a halt in the second half of 2024, and with confidence indicators and business expectations veering to the pessimistic, he believes risks are now more skewed to the downside.
For Professor Taylor, the biggest domestic concern relates to the cashflow squeeze.
And, in his view, this squeeze is already being felt both by businesses and households on various fronts.
"If I may, on this specific point, I will end with an old Yorkshire saying, passed down in many a mining family like mine: “it all comes off t’ pick point.”
Advertisement
Hide AdAdvertisement
Hide AdThis expression embodies a common-sense economic concept: the resource constraint. The hard-won wages of piece work 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.
Professor Taylor said he fully appreciated the challenges facing businesses and households and the headwinds they pose for the UK economic outlook, adding: “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.”
"To reiterate: we are in the last half mile on inflation, but with the economy weakening, it’s time to get interest rates back toward normal to sustain a soft landing. It is this logic that convinced me to vote for an interest rate cut in December.”
Businesses and consumers are certainly having to manage their budgets carefully on today’s uncertain economic coalface. Professor Taylor’s comments will provide them with reassurance that he understands their hopes and fears for 2025.
Greg Wright is the deputy business editor of The Yorkshire Post
Comment Guidelines
National World encourages reader discussion on our stories. User feedback, insights and back-and-forth exchanges add a rich layer of context to reporting. Please review our Community Guidelines before commenting.