The Monetary Policy Commitee has the same dilemma as batsmen facing a ball pitching in the corridor of uncertainty, the Bank of England’s new chief economist told an audience in Scarborough last night.
Andrew Haldane, who grew up in Guiseley and read economics at Sheffield University, said there is consensus across the rate-setting committee on three key elements of monetary strategy.
These are that any rate rise need not be immediate, that when rate rises come they are intended to be gradual and that interest rates in the medium-term are likely to be somewhat lower than their historical average.
Speaking at the Ambassadors’ dinner, Mr Haldane said: “The corridor of uncertainty is every bowler’s dream and every batter’s nightmare. It refers to a ball which pitches in such a position – the corridor – that the batter does not know whether to be playing off the back foot or the front foot. This is similar to the dilemma facing monetary policymakers on the MPC today.
“Should monetary policy hold back until key sources of uncertainty about the economy have been resolved? Or instead push forward to prevent leaving it too late?”
He said the strategy of playing late gives the batsmen more time to get a read on the trajectory of the ball as it swings and darts around.
“This is the way, Joe Root, the Yorkshire and England batsmen, plays his cricket. If he were on the MPC, he’d be called a dove,” said Mr Haldane.
But this approach runs the risk of having to react fast and furiously to avoid missing the ball entirely. An earlier front foot movement would avoid that risk, allowing a more gradual movement forward.
“This is the way Ian Bell, the Warwickshire and England batsman, plays his cricket. If he were on the MPC, he’d be called a hawk,” added Mr Haldane.
Quoting test match statistics, he said Joe Root averages 43 to Ian Bell’s 45.
“In other words, it is a close run thing with the odds at present slightly favouring the front foot. But a good run of scores from either player could easily tilt the balance.
“That, in a nutshell, is where the MPC finds itself today.”