BOE communication challenges

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Amongst the highlights of the Exante Data 10th Anniversary conference in New York at the end of March was the speech by the Bank of England’s external MPC member Alan Taylor. Taylor’s speech was an important intervention after the sell-off in UK rates the previous week, including as a result of communication during the March policy meeting. Available here, the speech was an opportunity to carefully reflect on the inflation outlook and the trade-offs involved in setting policy at this time. Taylor’s thoughts are applicable to other central banks as well and are worth a read. RemitTo be sure, even before Taylor spoke in late March, his approach to an energy shock was well telegraphed. Speaking in early March at a conference on the Monetary Policy Mandate at the Norges Bank in Oslo, Taylor emphasised how the Bank of England’s…mandate requires us to consider the trade-off between pushing inflation back toward target quickly versus incurring too much output volatility, following a large shock to the economy. That was the case after the inflation shocks of 2021 and 2022, and especially after the Russian invasion of Ukraine caused energy prices to spike.In fact, it is worth re-visiting the Bank’s Remit (the latest here) to consider how this trade-off is explained there. Indeed, the core concept of flexible inflation targeting involves the Bank communicating the associated trade-offs as a crucial part of the mandate. The Remit notes that:The [UK monetary policy] framework is based on the recognition that the actual inflation rate will on occasion depart from its target as a result …