Bank of England governor issues warning over future interest rate cuts

Don't mind, I've brought the legislation along, actually. Um, so obviously, you know, the first vote led to four members, uh, preferring to cut by 25 basis points, four members preferring to hold the rate, and one member preferring to cut by 50. Now, the legislation says in the event of a tie, the chair shall have a second casting vote, uh, subject to that legislation, the committee shall determine its own procedure. So the question, of course, is, is that a tie or not? Now, two things, I'll send this. My view is there was a very clear distribution of preference for a, a cut. Five, five members preferred a cut, four didn't. Um, I could have, obviously, we could have determined it was a tie, and, uh, I could have used the casting vote, but I didn't. Um, for a couple of reasons. One is that I think it actually is, I thought it was quite sensible, actually, to have a second round of voting and say, we'll have a constrained vote because, in a sense, we know where the, where the balance of preferences is.

The second thing is that I'm conscious that this, obviously, by the way, the casting vote has been used in the past, but it's been used in a context. It's been used at least once when we only had eight members of the committee. So, have an exact tie, because it would also be possible to have a, a three, a three-three tie, but we've never had that, I, I think. Um, but I was also conscious that we're setting precedents here. And in this case, my, I personally was in the five that were preferring a cut. But let's say I'd been in the other side. Let's say I'd been one of the people preferring to hold. Had I used the casting votes, I would then have had a, a bit of a dilemma because I could have used it to back up my own original vote, but then the outcome would have not have necessarily really reflected the balance of the distribution of votes. Or I could have used it to achieve that, in which case I would have ended up voting both ways in the two votes. And so I think it was a better outcome and a clearer outcome to say, let's have a second vote. Sounds like a sort of logic problem, doesn't it, partly? That was how we got there. I just wanted to get that procedural point out of the way, and I obviously want to come to members about their own decisions. But before we do that, there's obviously been big things happening across the Atlantic, um, with, uh, attacks on the Federal Reserve's independence. As you, the head of the independent Bank of England, I wondered if you had any thoughts or comments to make about the impact of that, uh, both on, on the global economy?

Um, I, I, I am, this is a very serious situation. I am very concerned because, uh, the Federal Reserve is obviously, you know, the world, the central bank for the world's largest economy. Uh, it's a leading central bank. It has built up a very strong reputation for independence and for its decision-making. So this is very concerning. And let me just, just make a comment on why it's concerning for me. The underpinning point, because this applies to all central banks, I think monetary stability and financial stability, which are our two objectives, underpin, you know, I think, sort of the foundations of policy. One way of putting it is that if we, you know, we do those things, we enable you then to go off and take decisions, you know, in the areas that appropriately, you know, governments and parliament should take decisions in, you know, which involve things like sort of distribution issues, knowing that the foundations are sort of sound. And I think that's, that's important. It was very strongly the, you know, the, the view, I know, of the government when the bank was made independent, certainly in respect of monetary policy. And I think what we're now seeing is, is people saying, well, no, actually, you know, we should be able to trade off the sort of the foundations for those other decisions, if you like. And I'm afraid I just think that is a very dangerous road to go down. I think our, you know, the job of an independent central bank is to provide those foundations, to take independent decisions, to do it within the remits we're given by you, with sessions like this, we're accountable to you. That's how it works, that's how it should work. And so the threats to that, I, I, I take very seriously.

Okay. And have you had any conversations with your counterpart in the US?

Yes, I mean, we, we talk regularly. I was in, I was in the, at the Jackson Hole conference two weeks ago, um, be seeing him in Basel this weekend. So, no, we talk regularly, as, as we do normally. I mean, we always talk regularly.

Okay. Mr. John Gray MP.

Just to kind of explain this thing about the independence of central banks to, to a way that my constituents would immediately grasp, would your position be that be careful what you wish for, because if you lose the independence of central banks, ultimately you will face higher prices, yes, higher mortgages and higher costs of borrowing for social housing and business? Is that, in simple terms?

Yes. Thank you. There are costs to it. Yes.

As ever, we want to drill it back to the impact on our constituents. So, to the decision. Um, so we've got Megan Green and, and Cla Lombardelli, who both, you both of you voted to hold interest rates and not to cut. So, I thought I'd come to you first, just if you want to explain what, why you took that position. If I start with Megan Green.

Sure. Thanks. As you point out, I voted to hold bank rate in August. Um, and this was motivated by two main things. One is, I think the risk of higher inflation persistence has increased, and secondly, I think the risk of weaker demand has decreased, um, particularly since May when we first put out and really fleshed out these scenarios. Um, on higher inflation persistence, you know, households and business inflation expectations have been elevated for some time now. The bank's done a bunch of research showing that actually, um, sensitivity to inflation, uh, increases at a, a lower threshold than it might have previously because we've just come through a period of high inflation. So that threshold's now around 3 to 4%. We now have our inflation forecast topping out at 4%. So at the very top of that band, much of the news that we've seen in inflation and, and feeding through into our inflation forecast has been in food prices. And food prices, alongside energy prices, tend to be highly salient for inflation expectation setting. And so there is a risk that you could get higher household inflation expectations, which could feed through into the wage setting process. Um, there's also a risk that you could get higher business inflation expectations feeding through into the price setting process. Um, the decision makers panel shows that firms are much more sensitive to upside surprises in inflation now than they had been a few years ago. So there's some risk there. So I think the risk of higher inflation persistence is higher. We've also seen core inflation has flattened out for the past year. Um, higher frequency measures of underlying services inflation have flattened out for the past year. We expect services inflation to stay at 5% through this year. So there are some signs that maybe the disinflationary process is, is slowing down. Um, we've also seen that a lot of the adjustment has come from sectors that are more interest rate sensitive. So that could indicate that some of the low-hanging fruit has already been picked, and the last mile might be a bit tougher. On the demand side of things, uh, we've looked at the relationship between the labor market and activity, and it's remained intact. We expect GDP growth to pick up, um, underlying GDP growth particularly to pick up modestly from here. So that suggests that any kind of labor market shakeout that I had been worried about before probably won't be coming. Um, employment intentions are still negative, but they're less negative than they had been previously. And, and that's from our agents. That suggests that some of the, or much of the adjustment in the labor market may have already occurred. And in May, I had actually been much more worried about trade policy uncertainty and the, um, disinflationary implications of that on the UK economy. We have a bit less uncertainty now. So that has abated as well. Um, so I'm more worried about higher inflation persistence, less worried about lower demand than I had been, and, and so I saw it appropriate to vote to hold bank rate.

Okay. Thank you, Miss Green. Um, Cla Lombardelli.

Sure. Thanks. Uh, as you say, like Megan, I voted to maintain rates at four and a quarter percent. Um, similarly, because of my view of the balance of risks to inflation as we see them now. I'll try not to be too repetitive on, on what you've already heard, but I think, um, let me talk a bit about inflation persistence, and I'll talk a bit about activity. On inflation persistence, I mean, look, inflation is currently at 3.8%. It was 3.6% when we, when we voted. That's obviously too high. And I would draw a couple of similar things to Megan there. There's a question about both the headline path and about the composition. So on the path, we've now had inflation quite high for, for costs for businesses, now for a number of years since 2021, apart from a brief period last year, it's been well above target. I think that length of time has an effect, as well as the threshold effect Megan talked about in terms of perceptions and, and experience. There's the other thing I would draw out is this point about the composition, which I do think matters. In particular, we've been surprised by food price inflation. It is higher than we expected it to be. We expect it to continue to rise, and actually, on central estimates, we have it going up to about 5 and a half percent at the end of the year. Um, that's obviously worrying in and of itself. Food is a necessary good. It is extremely difficult for people. It also, we know, has this salience issue. People notice it more than other price rises. And so we're very conscious that that, uh, people will be sort of alert to that. Um, it's one of the reasons why we spend quite a lot of time thinking about food inflation, why we spend a lot of time talking to supermarkets and others about what they expect. So I think there's that. Now, you have to balance that against the risk that underlying disinflation is continuing. Uh, has certainly over the last year. Um, there is an open question for me when you look at the data about whether that is slowing at this point or not. And I, I, I think there's, um, there's sort of risks there. If I turn to activity, um, and we spend a lot of time looking at underlying activity rather than the, the kind of more volatile month-to-month, um, data, but it's very clear activity is sluggish in the UK economy. That's obviously a problem for, for prosperity and well-being. It's also a problem, um, for inflation. And the, the thing that matters when you think about inflation is what, what is driving that, and the balance between demand and supply. And Megan's talked about some of the, the factors, particularly around demand, and we have to be very alive to the risks of demand deteriorating. Um, and then I think there's a particular risk about the consumption savings mix, and maybe we'll come on to talk to that. But the other, um, thing that I think is really important here is low activity isn't necessarily an issue of demand. It could be an issue around supply. And I think there is quite a strong case to worry about supply in the UK. Um, we know there is this long-term challenge on productivity. You know, we've seen that over a number of years. There's also evidence that the labor market is structurally changing, and that might be having an impact on supply. You know, issues around, um, population, demography, um, health issues, all of that we're sort of aware of happening, retirement. We also have a long-standing issue about private sector investment in the UK, and of course, that affects supply capacity. Um, I sort of make this, this point because actually, if you've got more activity more constrained by supply than demand, then obviously that's putting more pressures on resources, and that has a different impact on inflation. So I think it's slightly more complicated than just saying because you've got low activity, you must necessarily have a problem around, um, demand. I think we have to think quite carefully about the balance between the two. So, sort of taking all that together, I judge that, um, maintaining a slightly higher level of restriction would put more downward pressure on inflation. Because it's interesting, because I'll come to the governor in a moment, because, Governor, you've talked about the risk that disinflation momentum could slow as well. But before I do that, I think because Professor Taylor, you voted for 50 basis points cut, and so therefore you ended up shifting your, your vote. So can you explain the rationale and why you voted the way you did in the end?

Yes, I voted to cut by 50 basis points, and I think this is in the context of, um, a view that, you know, formed in the last six months since I was last here speaking to you. I think in the first part of the year, there was, uh, a lack of clarity both in the data and because of the uncertainty in the international situation, knowing that tariffs were coming, uh, and there was the arrival of the predicted hump in inflation, which is now unfolding, uh, as, as we expected in our February forecast. So, at that time, I felt like I needed to wait and see and have more clarity on what tariffs were going to do and whether, um, the labor market would continue cooling, whether wage inflation would continue to come down. And I think that became clearer as we got into May and June, particularly as we started to receive data on wage settlements. And I still think what we said, uh, a year ago or more about the crucial role of wage inflation in feeding into services inflation was the key thing for this last mile of convergence to sustainable, um, levels of inflation at target. So, um, I think it's about balance of risks, which have already been mentioned. It's just that I see the balance as being in the other direction than, than my colleagues. I'm cognizant of expectations needing to be taken into consideration, and it's true that household inflation expectations are somewhat elevated, though not dramatically relative to their historical mean and standard deviation. Uh, on the other hand, financial market inflation expectations are more benign and have actually been coming down, uh, more recently, and firm inflation expectations are in the middle. And exactly what signal to noise ratio those different types of inflation expectations have, um, is important to take into consideration. So, uh, I think on that, we need to watch inflation expectations, but that, for me, they're not, uh, flashing red yet. Whereas, um, if that's the main concern on the upside, I think for me on the downside, it's more a constellation of risks where multiple things could crystallize, both domestically and internationally, um, that I think are all, uh, in play. So, I think wage inflation is coming down. We're seeing readings for this year which are in line with our agents' prediction. In their survey in January, they were predicting a number like 3.7. I think the current average in the settlements database is 3.6 for calendar year 2025. Um, and as I think I mentioned in my previous testimony, as you go through the year, as we went through last year, those wage settlements tended to be slowing down depending as you went from January through to December. As you went through each successive month, the later settlements were coming in lower than the earlier settlements. And I speculated when, when I last appeared that that pattern might repeat this year. And that is what we're starting to see as we're starting to see settlements coming into the data set for the latter half of this year. And particularly in the final quarter, we're starting to see settlements around three, two, or even lower. And that's confirmed through more anecdotal evidence. When I go out with the agents and talk to businesses, I say, "What are you thinking of doing next year for your wage settlement?" And I'll ask the agents, "What have you been hearing about what they think will come next?" And it's generally coming in in the low 3s or, or, or thereabouts, and possibly lower, suggesting to me that we are completing that last mile of that trajectory. So the concern about inflation expectations has to be weighed against the actual incoming data on wages, because I think the, the most risky channel for the transmission of inflation expectations back into inflation, actual inflation, is through, uh, wage bargaining. But I think given the softening in the labor market, and we can come on to unemployment and the slack in the economy, uh, in due course, that that risk of inflation's feeding through wage bargaining is, uh, abating as the labor market softens. I'll come into the other risks in the constellation there, but I wanted to emphasize the wage, uh, issue is the most important. Um, I think the hump is a difficulty. I knew, kind of in May and June, I looked at the hump and I said, Alan, when are you going to kind of, you know, uh, maybe, uh, look a bit out of line? Well, it's going to be when the hump reaches its peak, which is around now. So I'm, I have faith in the underlying disinflation process, but we've got, uh, a disturbance now which I don't think is a manifestation of persistence from last year or two years ago. It was a new set of shocks that we got in January. Administered prices, taxes, a little bit of an energy shock, and now some food shocks. So, I think, uh, I'm trying to see through that, but, you know, this is the hardest time to do that. Uh, I think the tariff situation, we're now at the highest tariffs in the post-war period, or since the 1930s, in terms of what's happened, uh, with the new US policies. That's only just starting to manifest, I think, uh, in what we're seeing in US data, and I think it's only going to trickle through in the next year or two into the rest of the world as trading patterns rearrange. So I'm expecting, we're seeing it in some sectors, maybe autos, a lot, a lot of cheaper goods that couldn't make it into the US market will start, will start to wash up on our shores, on, on European shores, and therefore affecting us through, uh, intermediate products in their market that then filter into our prices. So I think a lot of that is coming and will be loading into the 2026, uh, economic conditions that we face. So all of those worries are in the back of my mind. Um, I think the tariff issue is a little bit undercooked in our, in our baseline forecast. So there's a point of disagreement for me there. There's also a point of disagreement in terms of the current output gap or the slack in the economy, which I think is a little bit worse than our current model is suggesting, because we're putting a lot of weight, um, on the nominal block, whereas I think the rest of the signals are saying the economy is a little bit weaker. Um, and then of course, lastly, I, I tend to think the neutral rate of interest is quite low, and so I feel we have further to go to reach neutral, uh, which, uh, leads me to think therefore, currently, we're more restrictive, and that we're plenty restrictive enough to take the remaining underlying inflation, uh, out of the economy, and I think we're seeing that in the way, uh, the wages are developing. So overall, um, I'm more in the four plus one camp in terms of how many cuts per year, maybe four or five rather than four minus four or three, uh, and so I think that led me to my vote.

Okay, that's very, uh, comprehensive. Thank you very much. And Governor, you, we've talked before here about that gentle trajectory towards the 2% target, uh, a cut of 25 basis points. What was, what was the reason for your decision?

Well, I mean, I won't repeat everything obviously being said. I'll, I'll sort of just sort of position myself, sort of, if you don't mind, sort of around the colleagues. Um, so I agree with Megan and Cla that I think, uh, well, Alan said it as well, that we have got, you, the risk, uh, on inflation has gone up. I think where I differ a bit is that I, I think the, I'm more concerned about the downside risk on the labor market. I think there is more evidence of, uh, some weakness in the labor market coming through. Um, the, uh, pay number, the, the pay number came in under where we thought it would be based on the May, uh, the May forecast. Um, so I put a bit more emphasis on that downside risk. That's, that's context. Policy, I do think remains restrictive. That's important. It needs to. So the question then is, as, as Alan was saying, is how to then judge the, the hump. I think the, yeah, the causes of the hump are mainly not telling us about the underlying state of the economy, but it is inflation, nonetheless. I mean, we can't, we can't get away from that. So the question is, is it going to create persistence risk? Well, I think context does matter here, and this is where my concern about the, you know, the potential weakening of the labor market is, is relevant. So for me, I think, you know, the, the judgment was this. It. I thought it was appropriate in, given that that downside risk, that we did a further 25 basis points. But I think I also thought it was appropriate that we gave a message which focused on this, this inflation risk. Um, and what that really turns into is a judgment that although, you know, we've taken a further step, and although I think that the path, you know, will continue to be downwards gradually over time because policy is still restrictive, uh, I am, there is now considerably more doubt about exactly when and how quickly we can make those further steps. That's, that's the message I wanted to get across. Now, I think actually judging by what's happened, certainly to market pricing since then, I think that message has landed.

Okay. Well, thank you all for your comprehensive answers. Always helpful to have flesh out, uh, the official minutes. Um, Chris Coglin, MP.

Thank you, Chair. Um, from what you've all been saying, if I'm reading correctly, um, I'd say with the exception of Professor Taylor, um, it appears that, uh, growth and inflation risks have decoupled, perhaps. So I'd be curious about your views of, is the UK stuck in stagflation?

Well, I'd be happy to start on that. I, I, I mean, stagflation is not a word I, you know, I tend to use because I think it, it, it's not, it's not a word that is, you know, has a very clear meaning. So let's take the two parts to it, inflation and growth. We've all talked about the inflation hump. So that's, in a sense, that I'm not going to repeat that. Um, you know, there is, there is obviously an upturn in inflation. By the way, the, you know, the hump is about 3% of a percentage point higher than we thought it would be, both in May and in February, actually. So that's the sort of dimension of it. On the growth side, I think, come back to what Cla was saying, and Cla made a really important point that the risk here is actually on the supply side. It's on potential growth. It's not so much on the demand. Uh, and, and the way, kind of, really putting, putting a sort of sense around that is that, you know, we, we think that the potential growth rate of the economy is currently around about one and a half percent. And has been, by the way, for some, you know, this is a description of most of the time since the financial crisis. Yeah, hasn't quite been that level, but that's a broad description of it. Prior to that, it was about two and a half. So, that's a, that 1% reduction in the potential growth rate is significant, and it's significant not just for monetary policy, but frankly, it's significant for other areas of policy. It's, it's, it's very important. And as Cla said, you can trace this back to both productivity, which has been weak, and has been weak really since that point about 15 years ago. And the other, the other contribution to potential growth, which is the growth of the labor force over time, the question of the, in, you, the increase in the average age of the population is very significant. And it's a point I talked about at Jackson Hole. Um, you know, this, I think we all know it's happening, but I don't think it really features enough in the sort of the, you know, the discussion of the issues around policy. Um, it is very significant. Now, as long as we have those, those two, sort of, if you like, sort of things restricting the potential growth rate, then we have got this tension. I think tension runs through policy. And so I would say again, it's very important, as Cla said, that, you know, and it's not, of course, really for us then, but these supply side issues are the focus, really, of, you know, of attention in policy more broadly.

Does anyone else have any on the stagflation point?

Um, I mean, the only thing I would add is, is, you know, we're, we're not in stagflation. And actually, it links to the original answer that Andrew, the Governor, gave, uh, in response to the independence question. You know, our target is 2%, and we will get inflation sustainably back to 2%, and we'll take the action needed to do that. Um, and as, as discussed, you know, we do have growth, one and a half percent. So, you know, that is growth. It is not as strong as we would all like it to be, but we, we are seeing growth, and we are taking action to bring inflation down.

But, but of course, um, national market expectations of inflation are consistently higher than the, uh, expectations of, of the bank. Does that ultimately undermine the credibility of the MPC?

Financial market expectations for inflation are well anchored, actually, around our target, and that is an important thing, and it comes again to this point about credibility, which is a key part of our, um, the structure that we, we have in, in the UK. So, you know, actually, we are seeing those expectations anchored. When we look at inflation expectations, what we are seeing is, is we have seen on the short-term expectations of households, to a lesser extent businesses, we're seeing, you know, some movement there, but as, as Professor Taylor said, they're quite small by historical standards. But of course, because they're so important to the, the inflation formation process, we look at them really, really carefully. I just, sorry, I just add on a very basic level, if you look at our forecast, we have growth and underlying growth picking up, uh, from next year through the forecast period, and inflation coming down towards our targets. So that we're not forecasting stagflation.

And, and there's been a lot of concern in the news at the moment about high bond yields. Um, I'd be curious to know your views on why you think that the UK currently has higher bond yields than France, even though France's debt to GDP ratio is higher, and actually the French government is at risk of collapse.

Well, we've got quite a substantially higher short-term interest rate than France, because France, obviously, is anchored by the ECB's rate, which is 2% currently. Um, so that, that's an important point. What, having said that, I mean, you've seen a steepening of, uh, of yield curves across the, across the whole developed world, really. So, I mean, I do think two, two points I'll make on this. First of all, the underlying, you know, driver of this is global. Indeed, when you look at UK yields in terms of the steepening, we're actually about in the middle of the pack. So, Germany and Japan have gone up considerably more than us. Less than us, we're in, yeah, we're in the middle in that sense. I think France has steepened quite a bit more. They've got their own obviously well-known, uh, issues.

Um, that's the first point I'll make. Um, now going, sorry, on that point, going back to my previous answer to, to, to the earlier question you asked, of course, you know, that does bring the supply side issues into sort of sharp relief. This, this question about the potential growth rate, particularly in the context of fiscal policy. Second point I'll make is that I, I do think it's important not to, f, over-focus on the 30-year bond rate. Um, of course, it's, you know, it's a number that gets quoted a lot. It's quite a high number. It is actually not a number that is being used for funding, uh, you know, at all at the moment, actually. Um, historically, the UK has, because it was a very sensible policy, which CLA was actually heavily involved in doing, of course, to lengthen the maturity of the UK debt stock, and there's real benefits of doing that. It was possible to do that while structurally, particularly the defined benefit pension world, these schemes were sort of still growing, and they were demanding those sorts of assets. They're mostly now mature schemes, and this comes back to the aging of the population, actually. So the structural demand for long-dated, long maturity bonds has gone down. Um, and I think sensibly, the debt management office has actually shortened the profile of their issuance to reflect that. So there's a danger that we get sort of slightly overly focused on on long. Because, just to end with one fact, I think when you look, I'm not, as debt management office, the experts on this, I think when you look at the cost of debt issuance in, in the course of this year overall, the average cost of, of debt issuance is probably, is at least flat and possibly slightly down, and that's because if you look at the five-year rate, which is much more tied to our decisions, it's actually gone down. So there's a lot of rather, sort of, you know, my dramatic commentary on this going on. I wouldn't exaggerate the 30-year bond rate.

Okay. Thank you. Bobby Dean MP.

Thank you. Um, I think I'll actually start with a preliminary question, if I can, because Professor Taylor, you mentioned about where you think the neutral rate is, and you're at the low end. And I just wondered if each of you could give me a sense whether you have a number in your head about what the neutral rate is, or whether you judge that as it goes, uh, and if there is, kind of, any discrepancy between you as a, as a, as a panel, really. Could I start from right to left? So Megan Green first.

Yeah. Sure. Um, so trying to pinpoint where our star is as a, a losing game. It's impossible to observe. Um, it's impossible to measure that, um, specifically. So, you know, we've put out a few boxes in monetary policy reports providing ranges. Um, I think the important thing to note is that there are a lot of reasons to think that the neutral rate may have gone up, um, over the past number of years. Um, so I think it's higher than it was. Um, I, you know, I could give you a number, but it wouldn't mean much more than anybody else's number, which is to say, not, not a huge amount. I do think though, that rather than coming up with a specific number for our star and trying to judge how restrictive you are on that basis, you, there are other ways to measure how restrictive monetary policy might be. Um, and one way is looking at the monetary transmission mechanism. How much policy has come through, how much is still to come through, um, and, and observing how much monetary policy is bearing on the real economy. And I think there are indications that we're still restrictive, but I'm not convinced that we're meaningfully restrictive. Um, we've been in a rate cutting cycle for, you know, a year now. So, um, it can't go on forever with us also being restrictive, and I think we're getting closer, which is, um, an obvious statement in many ways, because bank rate is coming down. But,

Yes.

Well, I think I can confidently predict as you go down the line, you'll probably realize there are difference, quite important, sort of philosophical differences of view on this question as to whether we know what our star is. I'm, I'm actually pretty close to where Megan has just described. So I won't repeat everything she's said. Pro, I, I really agree with Megan that I, I, I use far more the sort of the approach of saying, how, how restrictive are we judging by the monetary transmission mechanism? I think we're probably a bit more restrictive than Megan thinks we are. Um, one of the re, and, and just to draw out one point there, the mortgage market is obviously a very important part of that story. And because of course, we've switched to having a, a mortgage market which has gone from a variable rate to, to sort of five to seven-year fixed rates, it means that the transmission mechanism takes longer. So this sort of question about how restrictive we are does adjust over time. I think we said in the box, we're probably past peak restriction now. Um, that's not surprising because we've been cutting rates, but because of the lag, it takes longer to get to that peak point. So, I think we're past peak restriction. I'm probably though, my difference with Megan is I think we're a bit more restrictive than Megan thinks we are, but we're basically in the same sort of philosophical camp, I think.

Sure. I, um, I mean, actually, I'm in a very similar position to, to Megan, I would say, which is, um, I think, and on this philosophical point, I mean, like, uh, the Governor and Megan have have said, I mean, I think you have to, you can look at this in two ways. You can do the sort of model-based analysis, and you can do the sort of, what does the data, and, sort of, as you think about the analysis of what we're actually seeing in the economy, what do those things tell you together? We try, we do both to try and understand this and to try and get as much information as we can. I tend to put more weight on the, and the evidence of what is happening in the economy. Uh, and personally, I think it is basically impossible to know, sort of, what the neutral rate is, certainly in real time, at the point at which you're making your policy. So there's a lot of uncertainty around this. But I would, I think I would put myself, you know, closer to Megan in that, um, I, I would put myself at the upper end of the sort of range that the bank has set out. Analytically, we've said it's somewhere between two to four. I'd be surprised. I, I would think I'm more likely in the upper half of that. Um, but very, very hard, hard to know. And so, um, so, you know, it, but it is a, it's one of those issues that we debate and discuss and, and put a lot of effort into. I, I kind of wasn't expecting a number from me, to be honest, but it's just interesting here because of what you said first, because for me, um, if you feel like we're, because obviously the restriction has an impact on the economy too, right? As you know, and so, and so if you feel like we're too restricted at this moment, because we're too far away from where we need to end up being, you may feel like now is the time for more urgent action to get towards that place. And I don't know, Professor T, if you could elaborate what you meant when you said that, and if you feel that because of the things that you've already described about how a lot of the inflation stuff that you think is driving it will, will dissipate over time, that now is the time to act faster. Could you, could you, could you elaborate on that?

Yeah, I think that was very much part of my thinking that if I saw a greater weight of downside risks, and that I, I felt based on my estimate of neutral that we were more restrictive than maybe my colleagues, then I felt we had more space, uh, for an extra cut this year, and I thought the extra cut was justified on insurance grounds when I, when I saw that constellation of risks building. So, yeah, I think that that contributed to my feeling that we had quite a bit of space left to run.

Okay. Then the other thing that I've picked up in discussion, you've all talked about sort of the supply side as well. Is, is that a signal to government to do particular things as well? Because the tools that you've got, obviously quite blunt. You have the interest rate, you've got Q and Q2 as well. That's, that's the armory you've got when it comes to monetary policy. Is there anything you would like to see or, or there any, uh, thing that you'd like the bank to have more control over? Really, I'm trying to understand whether or not you feel like you've got the tools you need to, to, to do your monetary job. Um, and I know it's going to be hard for you to ask.

In the market for more control. Look, I, I think, and by the way, this is, I mean, these issues, as I said earlier, are not unique. I think it's really important. These are not unique to one government. These have been going on for some time. I mean, you, John Glenn, and I have discussed these in the past many times. So, I, I think, look, I'll come back to the points we've made before. Two things on the productivity side. I mean, it is, it is important because productivity in this country has been weak now for, you, quite a long time. Investment is an important part of that story. So I think, you know, things that the government is doing, and by the way, the previous government, you, was also doing, because there's no difference here, on things like pensions reform, I think are important. Things we did on long-term investment in the past, which we were involved in, are important because these are the things that can create the, you know, the ability to improve investment in the economy. So that's one thing. The second thing on the aging of the population, and again, look at the UK is, I mean, all, all developed countries are in the same place. So there's nothing unique about the UK in this respect at all. I, I, I just would say I do think it's important to have these issues thoroughly on the table and to make sure that they're sort of well understood, not just in this building, but more generally, because I think the importance of this issue as a headwind, a structural headwind, you know, is critical. I mean, is a very important issue in terms of what, not just in terms of both of the, you know, the labor force and in terms of, you know, the cost of health and welfare.

And can I take from that you don't think it's central enough to public discussion at the moment, that this, this demographic problem we have in aging society, you don't think it's central enough to our public discussion?

I think, look, it, you know, I'm going to stop because, you know, I'm getting very near to the edge of my rem. All I will say is,

Thank you.

And, and of course, you, you're very keen to get me on to that. But, um, look, I, I would say this. I, I do think it's important to explain the underlying issues. It's really important to explain the underlying issues here, and they affect us obviously, but they're not for us to, you know, to take on the responsibility for.

Do any of us want to add to that?

No, probably tempt you outside the agreement. That's fine.

Thank you very much indeed. Um, I'm going to now adjourn because we're expecting a vote. So, order, order, order, order. Welcome back to the Treasury Select Committee on Wednesday the 3rd of September 2025. We're resuming our session with the Monetary Policy Committee, uh, focusing particularly on their decision, uh, on interest rates, uh, in August. And I'm going to ask Miss Lola Makavoy MP to kick off. Miss M.

Thank you, Chair. Um, Governor, we were talking about, uh, the increase to inflationary pressures, and I just wondered if you could elaborate as to, um, why the committee still believes that these pressures are temporary, and, uh, why and how they differentiate between the 2021-22 pressures and now?

Yeah. So first, I mean, two parts to that that I think. First one is obviously what's causing them, and then the second one is what I would call the context in which they exist and, and where we think they go to. So I draw out, you know, a number of causes in, in, sort of, buckets. One is, as we were saying earlier, I think, before the break, that there are certain, sort of, what you might call administered prices. So this is things like vehicle excise duty, water bills, uh, bus fares, which are not, I mean, I mean, it's obviously inflation because prices are going up. It's not particularly telling us about the underlying state of the, sort of, demand and supply in the economy. Um, there's a second group, as we said, which has emerged a bit more in, in, in, in the recent months, which is food. Um, that's again, a mixture of things. Um, three things I draw out there. One is some global commodity prices. Uh, coffee, cocoa, beans, beef being the three things that we hear most about, I think. Um, and then the third one is, is labor costs. Uh, and, and bear in mind that the food industry, both in terms of production and retailing, has a larger share, particularly of, of people on, on or around the national living wage, which has gone up more. So if you look at the n, the, the, um, the, the average weekly earnings data and you use the breakdowns, you will see that inflation and those, sorry, food increase in, in wages in those sectors are higher. So that, that's the food components. And as we said earlier, food is important because it's salient, as we describe it, because, you know, we all buy, we buy it regularly, and we, we obviously buy a lot of it for good reason. Um, and then there's a third, so I've done, we've done most of the prices, we've done food. I, I think the third thing then is, is this question about, you know, wage pressures, uh, which I think now are come, they are coming off, but obviously they have been higher. Um, so those are the, those are things I draw out as causes. Now, the question you, you rightly ask, why is this different to, you know, three or four years ago, um, and therefore why are we in the situation of saying, well, you know, we, we think, and our central forecast is that this, this will come off, starting sort of around the end of this year, by the way, you know, there's some signs with food that the commodity prices element is beginning now to come off, although I think we think food overall, food inflation probably will peak around the end of this year at just over 5%, I think is the current number. It's, it's four, four something at the moment. Um, context matters here. So the context, as I said earlier, is I think, is one of a weakening labor market situation. Um, growth, as a number of us were saying, you, underlying growth has been subdued, but it's, you know, in our central projection, it's going to be around the sort of potential growth rate, around the one and a half percent level, but there is some evidence of, I think, of the labor market weakening at the moment. So that context judgment is important, as I think Alan was saying earlier. Um, you know, we think that there is an output gap opening up. I think there's slightly different views amongst us, probably about how much and what the profile is and what causes it. But there is some evidence of slack in the economy. Um, and those are the judgments that are key as to whether this hump is going to go away or whether it will create some persistence.

Okay. But the general consensus is that the pressures that we're facing today are not, uh, as severe as 21-22.

Well, they're not, I mean, thank goodness, um, because we're not seeing the same shocks. I mean, you take the food price shock. I mean, you know, food price inflation peaked at 19%. Now, a lot of that was obviously the Ukrainian effect. So, yes, we're seeing an increase in food.

price, but we're not seeing that sort of effect.

Thank you. And you mentioned about um GDP growth and do you think how much do you think uh the global shocks that we've had seen in the last 18 months compared to sort of forecasting which is a very difficult job of of global shocks coming down the line? How much of that is a factor in your predictions for GDP?

So I I think it's interesting there you probably detected from the each of the each of our answers to the sort of the initial question about why did we vote as we did that we didn't say a great deal about the international situation relative to the domestic situation and I think that's because probably speak for my colleagues at this point that I think we were all of the of the view though we take slightly different views on the domestic situation that it was the driver really in the in the decision. Now, why is that given that the global situation is so much in the in the news? And I think a couple of things there. One is um I don't think we're seeing inflationary pressures coming through from the tariff situation as of yet. We said I think back in May and possibly at the hearing we had after May that the impact of tariffs when you're on the receiving end of them is is ambiguous from the point of view of inflation because if the if the world economy started to fragment and we got supply chain pressures as we did after COVID of course that would be inflationary if we get redirection of let's say Chinese exports let's be blunt about it if we get more then that could be you disinflationary so it can go both ways we're not we're not seeing a lot down that channel at the moment. But, you know, it's still relatively early days on that front. So, we can't, you know, we can't say that's over by any means.

I suppose the other thing I'd say is that I mean, and here I'm going to sort of do a bit on the one hand, on the other hand, if you don't mind. So, tariff levels at the moment are lower than we thought they would be in May. Um, of course I have to say, you know, they are still very fluid, of course, as you you judge from the news and the that's on the one hand. On the other hand, I will have to say they, you know, having said that, they are still at the highest US tariff levels at the highest level since the Second World War. So, let's not underestimate the significance of this, but it isn't as big a part of the story. We, you know, from the point of view of UK inflation as, you know, probably we feared it might be, but we have to keep watching this very closely, I would say.

Thank you, Governor. And then Miss Lombardelli, um, for two consecutive quarters, the bank underestimated the near-term growth of the UK economy. Uh, do you think the bank's being pessimistic? Um, or is that because of the lack of uh, stability more generally across um, the global sphere?

Yeah. Um I don't think we're being pessim I mean you you you're right in that um for you know Q1 and Q2 those numbers came in uh above what we expected. I mean we spend our time a lot of time thinking about what's going on in the sort of underlying position of the UK economy because this data is quite volatile. So you know if we take the Q2 uh number it came in I think it was 0.3. We expected it to be 0.1. If you look at what those differences were, they were pharmaceuticals, health, something, some businessto business services, they were quite, you know, these are fairly these things move around through time. And so, you know, does it tell you a lot about the underlyings? We don't think so. But we spend quite a lot of time looking at our forecasts, their accuracy. We look in particular, do we see um are we seeing they're particularly overoptimistic or underoptimistic? You know, are our errors on one side or the other? you know broadly they are balanced we're as often uh above as we are we are below if you like and that I think is important because it does give you the sense you know allows you to check is there something systematic going on in terms of getting this wrong now we are actually putting a lot more effort into our forecast evaluation in response to the Bananki review because this picks up on one of his uh recommendations about incrementalism and looking more fundamentally at your forecasts each time so that you don't just compare this one to the last quarter but you actually say over time are there things going on? So when we look at that, we don't see systematic biases one side or the other um which which provides some reassurance. But you know it's always important to sort of keep keep your eye on this and to check and to check what what you're doing.

So I think it's that I mean the other thing I would say is you know we're not in the business of forecasting shocks to the economy, right? We kind of assume there won't be a shock because how could you scale that? How could you do that in a meaningful way? Um, so yeah, in a sense of I'm not surprised that that we see errors. I would be very worried if we were seeing systematic errors in one direction or the other. And that's why I think it's really important that we put some more resource into thinking about this is what we're now doing.

I mean, just on the last 10 quarters, I think we've been over in six and under in four. So it's not a particular and by the way, that's to the second decimal place. So you people say shock horror, you make error. Well, no, you'll always make errors to that to that point. I mean, you don't get them.

Thank you. Thank you. Dame Harry Baldwin MP.

Yes, thank you. And governor, you've now been uh governor for five years or over five years and it's been a torid time. There has been this period that we've heard about from Miss Makavoy, but overall our constituents on average are spending 28% more for the same basket of goods than they were five years ago. Um the target obviously cumulatively over 5 years would be just over 10%. So I wonder if looking back on that full five years not just August um you can pinpoint any of the you know the what you think were the monetary policy committee's worst judgment calls in that five years.

Well, I I I can give you an answer which looks at sort of the shocks that we've had and you know I can give you sort of you know which ones hang which ones have invasion you know which which ones have it goes back to CLA's point about forecasting shocks and I'll tell you which ones have sort of surprised us and which ones caused me to reflect. So look, I mean, obviously, you know, I became governor just as COVID was breaking out. So I don't think any of us sort of could have forecast CO itself. Um I I I would say the same about the Ukraine war. I don't think any of us could have forecast the Ukraine war sufficiently far in advance. I mean, I think the one that's interesting for me and and by the way, I'm I have to say this that not only did we not forecast it, I don't think anybody forecast it in the world of forecasting, but I think it's important and it comes back to things we were saying earlier is the fact that when you look back at the postcoavid period, the UK appears, and I say appears because of the problems with the data, but let's take it at face value to have had a negative shock in labor supply. So coming out of COVID, it appears from the data that the UK has had a negative shock to labor supply. Now that puts us in an unusual position in in in in you know comparison with other countries and has I think been you part has been part of the inflation story because we've obviously spent a lot of time on question about wage wage increases for instance. Now I I have to be honest with you. I don't think I still really understand why the UK is in this unusual position to be honest with you. Um but it comes back to this point we've been talking about about supply side shocks because these shocks are really supply side shocks they're not demand shocks they're supply side shocks. You know the people who say well UK demand ran ahead postcoid no it didn't. I mean frankly the UK story on growth on consumption on investment is not suggestive of that. So the one that I think really causes me to reflect, but I have to say I think you know we were all in the same boat on this one is this negative labor supply shock.

Turning to last year's budget which was again um I think surprised the economy in terms of it it its scale and you came to see us last November and you said that you were having a neutral forecast in terms of how the economy uh might react to the budget. You wanted to see the evidence. you said it could feed through through higher inflation insurance u fewer jobs u slower wage increases than otherwise a squeeze on profit margins and an increase in productivity and I just wondered if you could update the committee in terms of those five things what you're thinking now were the main ways in which the economy adjusted to last year's budget.

Well I think first of all it is still evolving obviously to to be fair so it's not over this was particularly on by the way this is particularly on the national insurance contribution point really um and I Yeah, we set out the channels and we are still seeing and when we talk to businesses we still see that I mean it's not been the response is not dominated by one channel. I think at the moment the evidence we would certainly get and our agents would get is and this is not surprising is that probably initially more of it comes through in margins. Um but but we are seeing now adjustments particularly in the labor market. So both in in probably in in numbers and in and hours and in pay. Now, I don't think I don't think any of that surprising. It's not actually contradicting what we s assumed last year because, of course, if if all the other adjustments take time. So, adjusting your labor force takes a bit of time. Adjusting pay if you if you have pay increases that are lower than they would otherwise have been, that takes time. If that takes time, the first thing that takes the strain is is the margin. So, I don't think there's anything surprising about that. So, I think we're still seeing a, you know, a mixture of effects. It's not out of line particularly with what we were I think expecting.

I guess from your point of view from the monetary policy committee's point of view it would be the higher inflation if you had se seen uh the ability for businesses to pass on price rises to consumers uh exceeding your expectations that would be a worry and and I wondered whether you're seeing any of that and and how that feeds into the overall inflation expectations in the economy which seem to have risen to sort of more like 4% uh people don't seem as confident as you are on the committee that we'll see inflation return to to to 2% again. They they seem to have embedded this 4% idea. So I just wondered how much whether it's in line with your expectations the extent to which businesses have been able to pass on price rises to consumers.

I think it differs from sector to sector as well uh as to how much is being passed on partly because of the state of demand but partly also because in some parts of the economy uh and particularly um those parts of the economy where a larger part of the labor force is is at is is at the living wage or around the living wage then one of the channels is closed down in terms of of of the ability to respond to it because if obviously if you've got staff on low pay levels and the living wage just the sort of controlling variable then you can't set the pay increase level lower than you you would otherwise do effectively. So I think um that uh it's certainly the case that we see when we look at the breakdown by sectors. I mean I was mentioning food earlier. I think you can mention probably some parts of the services sector. Uh we are seeing higher higher wage increases because of the because of the inability to in a sense pass it through down that channel. So it does differ from sector to sector.

On your point about um what people expect. I think I mean CLA was making his point earlier. Short-term inflation expectations measures do respond very closely to to headline inflation. We know that. Um and by the way, I'm not surprised. I mean that's that's logical. And and you're right therefore that that tends to create the view that people don't think that inflation is going to come down because they're setting their expectations based on what it is today. And it's our job obviously then to set to set policy to to achieve that you to return to target as CLA was saying you know that's our job and we will do it and that's why policy is restrictive.

Do you see any evidence that the public is losing trust in your ability to control inflation?

Well I think Alan was saying earlier that no in the sense look there's a number of different measures of expectation. So there's there's public uh there's individuals there's businesses there's markets. markets um certainly the inflation expectations are anchored and they're anchored you know around inconsistent in my view with the target business expectations are in the middle um but but they do you know show that they expect inflation to come back come back down again public as I said because they because and I can understand this there tends to be a larger element of what is today's inflation rate influence influencing expectations and I think what I look at particularly then is is are we seeing public expectations moving even more than the current inflation level would suggest and we're not seeing that. No.

Thank you. And if I may check, can I just ask a quick question of Miss Longi about the Banani review because you very helpfully provided us with a very long written summary of where things have got to in terms of implementing the Banani review. Um I'm just interested on the um the modeling side of things because you've added 30 staff to help with the changes to the models. um how long do you see that project taking and do you think the models have correctly um assessed uh those factors that what I was just asking the governor about and more importantly inflation expectations in the economy.

Yeah. Um well look thanks thanks for asking on the modeling. So we're making good progress on the the modeling. We've actually completed some things for for example our workhorse that we use for the central forecast the DSG model compass. We've updated that. that's been reestimated now. And we've also built in for example a much more sophisticated energy sector which will pick up directly on some of the issues around what's happened over the the last few years. And we know that energy is a sector that's provided quite a lot of shocks and volatility and so will sort of help with that. So you know that's an example of something that we have basically completed. We're making good progress on our semistructural model where you know with a lot of help from the ECB actually we've used you sort of shortcut the process of doing that but that will take time. We've also got some more sort of statistical models that we are building which are particularly helpful for some of the short-term inflation forecasting that we talked about. So these issues around what do we think is going to happen to the components of inflation over the next six months. Um we've got further to go quite a lot further in some you know create building models takes quite a bit of time and particularly some of these supply side issues that we've talked about takes um takes a bit of time to think about that. the economics profession typically has spent less time on those sorts of models and so we've got further to go. So I I mean I would anticipate for some of that modeling it's going to take a few years to to have you know a a wider suite online. Some of it is being used now and actually we've used the new compass model in a few rounds already. Uh so you know and that in contributing to what we believe to be um better forecasting. So I think you'll see it over the next few years coming on. I would say also part of this I mean the big change from the Bananki view is a sort of philosophical one about having a much broader range of analytical inputs and that might mean that we're building models that we're not using for the central forecast but we might apply whether that's to scenario analysis or to just looking at some other variables in the economy. So um you know it's a it's a piece of work. It's a sort of evolving piece of work. I think it'll take a few years but we are already seeing some of the benefits of that now.

And he wanted you to abolish the fan charts and the fan charts live on. So does the do the fan charts stay until you finish this modeling work?

Not necessarily. I think so the the issue I mean the fan charts raise a broader issue which is this question of how should we use and think about uncertainty and communicate uncertainty and the fan charts are one way in which that has been done in the past actually very powerful visual representation of uncertainty Dr. had two sort of criticisms of them. One is the way we were using them um wasn't really as grounded in analytics as you know it it should have been. Um and we've stopped in a sense uh making kind of ad hoc adjustments to the the fan charts or making them ad hoc but making adjustments that were less analytically based. We have kept them in for now because we are still thinking about what is the best way to communicate uncertainty around a central path and uncertainty more generally where you know there's a role for scenarios there's a role for other um ways of thinking about and talking about uncertainty uh until we've sort of decided what we think is the best way to do that we're still maintaining the fan chart they do have a I think an important kind of they provide an important demonstration of uncertainty I mean we always say don't look at the central path you look at uh think about the kind of distribution and it allows you to do that but so I mean we haven't we're basically thinking about the still we haven't taken a final decision on um what happens to the fun chart we have taken and it's sort of initial steer from Dr. Banani to you know if you are using it use it in an analytically based way.

Thank you very much D Harriet John Grady MP.

Yes, thank you very much. J Meg, just back to the food price inflation which matters a lot obviously to my constituents. You've talked about global commodity prices, coffee, cocoa, beef. Perhaps a question from Islamadelli. What are the underlying causes of that inflation? What's pushing it?

Um well, as I say, we we've looked at this quite a lot and both in terms of the analytics of the data, but also talking to people across the sector, both production and um and sales. I think there's a few things going on here. So for those those goods that the governor talked about, a lot of that is about, for example, the price of animal feed, right, which we just, you know, it feeds into the cost of beef, butter, as well as um, you know, other sort of dairy and and farm products. We know that now. There is some good news there in the sense that that appears to be coming off and so we would ultimately expect that to feed through to lower prices though, as I say, we expect food price inflation to go up before it before it comes down later this year. and unfortunately peak um just before Christmas on our central expectation. So you've got this question about things like animal feed and other agricultural crops. Coco uh was was the other example. A lot of that is weather is actually just driven by weather and about sort of harvests and the timing of an abundance of those. Um so that's the sort of big driver of some of those agricultural products and as I say feed that then goes in goes into to others. There is also an issue about changing global demand actually for those goods. So, you know, we we've looked quite carefully at sort of who is consuming what and and why. You know, it's not the case that people in Britain eat more butter than the French or drink more coffee than the Italians. Actually, it's quite it's quite similar, but we are seeing some changes in demand globally for things like cocoa as coffee becomes more popular in sort of parts of Asia, for example. And so, that does change the the demand. So, it's it's sort of this combination of of of demand and supply. But, as I say, in particular for the goods that we've been talking about, actually, weather patterns have had quite a big effect.

And just a quick follow up first of all on animal feed. What's in your view is driving the increase in the cost of animal feed. Is it energy costs or.

A lot of it is these sort of the impact of the weather reducing the supply? Basically.

So just thinking about those causes, weather takes you to, you know, climate change and so on and what's going on in places like Spain.

Um change in global demand takes you to global economic growth. You know, the rise of China and the Azen economies. None of those feel particularly temporary to me. So why are you confident that this is a temporary phenomenon?

Well, I mean, you know, we're confident this is our sort of central expectation. I mean, actually, we've got some scenarios that look at more um persistent inflation. But if we if you look at the sort of the what's happening in these commodity prices at the moment and the sort of forward prices, you can see some some of that coming off as I say on the the the feed side. Um and these things are just volatile and and vary on these things. So if you talk to people who are in the industry of the for these these markets, they are expecting these prices to come off and so they expect some of these prices to go down basically into next year. Um as you if there are other shocks, you know, if we were to see another set of adverse weather patterns with an impact on supply, we might see them again. Similarly, if we don't see that or indeed the opposite, you know, there have been some goods I think olive oil, sugar will be example where actually you've had much greater supply than expected and prices have have come down. So, it's this sort of combination um is is the reason. Uh I mean the other thing sort of longer term and this actually comes back to some of the issues about supply uh that we were sort of thinking about is there are of course always changes to productivity in these these sectors and some of these sectors are ones where actually sort of technology and the application of technology will over time although that's a much longer time horizon have an impact on supply.

I mean just simple economics as well if if global demand for coffee goes up you would expect global supply over time global supply of coffee to go up because there will be an incentive to grow coffee. I don't know. I have to be honest. I don't know how long it takes to rear a coffee bush to create it. So, I'm way out of my.

Well, that that is a thing of course, isn't it? Is.

There's not many in Glasgow, I'm sure. But unfortunately.

Well, um we'll see what we can do. But on the prices of food, why is given the these global factors, why is food inflation higher in the UK than in the Euro zone? Do you have a view on that perhaps again?

Yeah, I think I mean actually and we we had a chart in this in uh in our August report actually in the Euro zone as well food prices have gone up. I mean these are global uh global commodities as you say and actually there's a very lively debate if you spend much time in Europe about the price of coffee at the moment for example. So you have seen you do see um that they're tracking. There are a couple of things though um that are different. So, as the governor talked about, uh, you know, a large proportion of the workforce involved in food production is is is, you know, on or close to the minimum wage, uh, the national living wage. Uh, and so that has a an impact. There's also quite a big difference in the labor um, what's going on in the labor market in Europe versus the UK. You know, the European uh, union, and we should be clear, there's a lot of variety across the labor market. the labor market in different parts of Europe is very different. But in general, it there's more um more sort of slack in the European labor market than there is there is in in the UK. There's more labor supply and that means actually wage pressures have been a bit have been a bit less. There's a few other timing issues in particular like some of the regulatory changes we've seen around packaging for example, although I think that's more timing because you know again the European Union and doing some of that just to a slightly different time frame.

Now we talked earlier about not being in the for business of forecasting shocks and also the Ukraine shock. One thing that does worry people is is China and Taiwan. What impact would a major crisis in that context given rare earths in China, semiconductors in Taiwan, what impact would that have on inflation and and and has the bank turned its mind at all to that governor?

Um yes. I mean it comes back to the point I'm making earlier which is of course if it if it led to a breaking and disruption of supply chains and and I would look there frankly in terms of predicting impact if it were to happen then yes that would have an effect and we saw some of that obviously during the COVID disruption that was different Ukraine yes so Taiwan obviously major well the world's world's largest producer of semiconductors so that's you know that's very significant uh in that respect so I mean we do Um you know we do follow these things and we follow them wearing both of our hats both our mon policy hat and our financial stability hat obviously um you know if I have to tell you state the obvious we have no ability to influence these things in terms of where they happen but we do follow it very closely yes.

And perhaps it's something you set out in writing then just about how you do follow it and any kind of thoughts you have on both fronts because I don't want to take up too much.

Yeah, we can do something yes.

I mean obviously by the way I mean we do rely on government quite a lot for this because obviously They've got the diplomatic network. They've got.

Of course and it's not so much the will it happen because none of us know. It's what are the consequences and how prepared will the bank be for that sort of eventuality.

Okay.

Thank you.

Thank you very much. Rachel Blakemp.

Thank you very much chair. Um Miss Lombardelli the report highlighted a uh household savings rate ratio that was up uh to 11.6% 6% and also with the July consumer confidence barometer savings index which tracks people's desire to save rose to its highest level since November 2007. What's driving this behavior?

Yeah. Um well, one of the drivers is monetary policy, right? So interest rates have been higher. I mean this is an intentional channel, right? It's one of the ways in which monetary policy works, which is, you know, it makes uh savings relatively more attractive than otherwise. So people save more and actually so that's one of the drivers and we know this because if if you do surveys and ask people why they're saving more some of them will say it's because of getting a higher return on those savings. So there's definitely that. We also see some evidence and again this isn't a surprise that in response to a series of large shocks that have had quite big impacts on people's um economic position people have chosen to save more. So, you know, I think um I've got in front of me the the sort of survey data and one of the the biggest increases has been in people saying they want to save more for emergencies. Now, that's not a huge surprise given what's happened whether that's COVID or the the um you know cost of living and and those sorts of of issues. So, you would expect in a sense that sort of precautionary savings to rise. You would expect a change in the incentives um uh you know a change in response to the the sort of return to savings. So uh those two I mean it's quite interesting um we also look at this question in terms of thinking about the labor market and if you look at are people have people increased their savings because they're worried about unemployment the answer to that is they haven't actually which is quite interesting I think um and you know you would think people are more worried about uh unemployment that would be a way a reason for them to increase their savings but they're not reporting that they're not saying that we're not seeing I mean they they say it but they don't say it anymore than they used to if you like so that's just you know in terms survey responses. Um.

And I just probe on that that caution point. So, you don't have the survey evidence to say that they're any more concerned about unemployment and are you able to untangle uh what that whether the interest rates or the generalized caution are driving the behavior?

Yeah, it I think it's a bit of both. I mean, if if I'm actually looking at the the data in front of me and I should say this is survey data, right? It's not, you know, it gives you a good indication, but I'm sure there's a lot of other things going on. But actually, it sort of doesn't, it asks people to say the reasons and you can say more than one. So, it's quite hard to unpick, but if you look at what's changed, there's definitely something about responding to higher interest rates. That's the biggest change, which you would expect because we've had quite a big change in in interest rates from the start of the the raising cycle. Um, and this thing about emergencies, it's that's a smaller increase, but it's still quite a high level. So I think you've got a bit of both um going on there. I mean I would say this is really important to us because one of the things we we have in our central forecast is an assumption that over time say the savings rate will fall back to a more nor well you know more more in line with its average level um and so consumption would increase and that is supporting demand in that sense in our forecast. So it is one of the risks we think about quite a lot which is if we don't see that happening is that a downside risk to demand one of the the many I think that professor Taylor talks about in the constellation and I think that is something that a lot of people on the committee think think about and and we are sort of tracking and keep in mind.

And is the concern about shock from your data or your analysis to do with shocks COVID Ukraine that kind of inflation or a different kind of people anticipating more more personal shocks and becoming more aware of those people just becoming uh more financially aware through through education about the there are there there are good standard reasons to save or is this a 21st century phenomenon?

Yeah, it it it's a good question and and I think virtually impossible from the data to be able to tell. I mean I think it's you know it's really important. We sit there thinking about these shocks in a kind of macro perspective and how do they feed in? But of course to individual households and to individual firms, they're incredibly personal and you know they care about their own finances, not necessarily the fact that everyone else is is feeling like that or indeed you know what the the driver is. You know the the we heard the numbers earlier about the increase that people are spending on the same basket of goods. you know that that um will be having an impact on you know it brings home to people if you like the economics um and their personal balance sheet.

Thanks very much. And governor the experience of borrowing is not the same for everybody in terms of the types of product that they're turning to. So we've seen in really positive sense in terms of stability uh mortgage rates coming down but we're also seeing personal loan rates stay quite high. What do you think that's about?

Yeah, you're talking about unsecured loans then I think. Yeah. Um I think it's it's it's an interesting one actually. So when we look at it um from the point of we look we tend to look at the relationship between the personal unsecured loan rate and the the the usually the swap rate which will be either two or five year swap rates. Um, and what we see is that that that and you'd obviously expect the unsecured loan rate to be above the the swap rate because you've got credit risk in there. Um, if you look at it over time, actually that that that wedge between the two is now back to where it was precoid, it actually shrank uh as we were raising rates, interestingly. So unsecured loan rates didn't go up as much as the swap curve went up. Um, I I I can't give you a sort of very sort of well-developed reason for why that hap why that why they the that that wedge came down and has now reverted to where it was. You might think it it might have something to do with with demand for lending. It might have something to do with competition in the industry. I I I don't know.

We don't know. It could be because.

What we know is I say what we do know is that although it it looks like it's gone up actually the the wedge which to to to the market rate has actually reverted to where it was to its pre-COVID average.

This is chart 2.5.

Yeah. Yeah.

So the the wedge is is staying about the same, but it just happens to be a bit.

It hasn't. The point is it didn't stay the same. It's it's reverted to where it where it was. So it looks like it's back into its sort of more historical position. Um, Miss Green.

Sure. Uh, yeah, I can just add that there's typically a lag between when the two or five years swap rate comes down and when personal loan rates come down. And so part of it could also just be the traditional typical lag.

Do is there must be data on whether demand has gone up for personal loans. So that would be that that could inform this.

Well, we can send you that data. I'm not I'll we'll have a look around and see if we can get any more data to illustrate that. Um, we can certainly send you the data that we've just been talking about and and illustrate.

That be helpful. Thank you.

Thanks very much.

Thank you very much. M Blake John Den.

Thank you D Meg. Um can I turn to um the labor market and the monetary policy reports is that labor market conditions continue to weaken and I'd like to try and focus on what determines your evaluations of what is happening in the labor market. Lots of assertions are made about national insurance increases or concerns about uh you know employment rights bill leading to an anticipation of increased costs. Can you tell us about how you you attribute using data >> to to actually get us to understand what that weakening looks like? We heard in your opening statements there's a range of views about your future projections and I'll come to Professor Taylor about his view about the the labor market. But what I'm anxious to understand is let's cut through the politics and get to the heart of what's actually happening. Governor, would you like to start?

Yeah, Well, look, first of all, of course, we have to actually sort of in a sense establish what the overall picture is and that's not been easy because obviously there's well-known pro problems and questions over the labor force survey. my colleague Yang will come and ask about that. Our staff um our staff spend a lot of time you know compiling and when we publish them in report compiling other you know other data sources some of which are official HMRC type data for instance is is very good and they and we use surveys there are a number of surveys we can use to actually try to get at the overall picture I should say that the you the earnings data are rather better than the quantity data we think at the moment that wasn't always true in the past by the way but it is at the moment now then you very good question well okay Then how do you form a going back to I think um Dame Harriet's question actually about how do you form a view on what the what the underlying causes of this are? Well, we do rely on our agents a lot at this point. So our agents obviously.

It's a network across the country people.

So they have obviously a port a panel a very large panel of of contacts uh which we attempt which we always try to keep it in a sort of balanced representative sectoral you know firm size uh type type way. and they obviously input to us on at every monetary policy meeting they give us their latest state and then I think the other thing I'd say is that each of us goes around the country with the agents and sits down with firms and with groups of firms and talks to them and I can certainly speak for myself it is very high on my list of questions that anybody I you know go and visit because it's an important it's a very important question.

Thank you so could I go to professor Taylor on this point because you have quite a distinct view over the situation in the labor market I think around Well, a slightly divergent view perhaps. Could you I mean given what the governor has just said about the data points you all access and this wide a lot of qualitative data on on expectations you know your assessment is slightly different. I think you say that you know a slow loosening of the labor market can suddenly turn into a rapid deterioration that is much harder to to arrest. Could you just say a little bit more about how you see the lightly trajectory in the labor market?

Well, I think it's about risks. So, I think that uh the statement about how you can have that nonlinear break point and suddenly the labor market can accelerate in in a downturn. I think that comes from economic history, not just of the UK, but US and other countries. Uh and I think it's a point that's shared across the committee, but it's just how big a probability or how big a risk does that >> represent at this point in time. So, I think um when we discuss this, it's not like some of us believe that that's true and some of us don't. It's just a question of how proximate is that >> risk. Uh and I think for me and maybe even for the rest of the committee um I share the the view of the central forecast that um unemployment has been over the last 12 months and will be on an upward trajectory. So I don't think I I disagree with the slope. I probably disagree with where we are right now the starting point. I think we're slightly worse than um the forecast statement. And the reason for that is that if I look at the models, the nominal block in the model is saying given inflation where it is, we should attribute the relatively high inflation to demand being perhaps elevated. Um, but uh I'm I'm all of the other models based on the real side, based on output and employment tend to say the output gap is a little bit worse. The economy has more slack in it. And I'm I'm inclined to put more weight on those indicators than on the nominal block because we've sort of said uh in another part of our thinking we we have to have an inflation persistence judgment in there because in a sense the connection between the output gap and inflation isn't maybe playing out right now in line with our historical models. So that says to me, okay, I need to rewe my signal noise ratio over here and pay more attention to the real indicators. Um, and then you know I mean some of the the official data versus like HMRC vers versus the labor force survey are disagreeing in a way where you know LFS may say it's not that weak but HMRC numbers have been suggesting maybe it's a bit weaker. So it's a matter of inclination. It's just saying I think we're starting right now from a point where we're a little bit weaker and that means the the risk is the the risk gets a bit more proximate.

Thank you very much. Can I pass to my colleague Yong Yang who who I think wants to take forward on the data points we're all interested in.

Yeah, we're all fascinated by data. I think we all probably all share this and a nerdy group of people in this room and we all love data. Good. Excellent. There we go. We're all excited about that. Thank you very much Mr. Glenn and indeed Yuan Yang come next. Thanks.

Thank you chair. Governor, you've slightly prempted my question about the ONS which I know that we've discussed at depth in this committee. To what extent does the ONSS plan new plan for economic statistics address the concerns that you've raised before with this committee and what are the biggest remaining gaps do you think?

Well, first of all, I mean we we very much welcome the report that Sir Robert Dero did. Um I think Clare actually was involved in sort of inputting to it directly from the bank's perspective. Um very supportive of it and I also welcome the INS's response to it which I think is is a sort of measured and sensible response. Uh so I think then of course that you know the the plan emerges out of that in terms of what they're going to do. I have to say we have given them one of our best senior staff well given them has gone to work there and I'm very pleased I think you know because we want to support them but it was also a choice that that person made. It's good. Um and so I think we do have to now sort of you know all get you know get behind it and make sure that they they can deliver it and that they do deliver it. you know the the world of statistics and because I you know we talk to our counterparts in other central banks it's not straightforward there have been a lot of changes in sort of structure and you know way people way people as I've said before way people answer the phone the way people live um you many countries statistics agencies are saying you know it's becoming more difficult so I think we have to support the ONS but I think the devro report gives them a way forward and I'm you I'm very pleased in that I think it's right that they're really you know putting putting extra resource in at a senior level to lead this. So we will support them through it. That's very much a commitment that we should and will make.

Thank you, Governor. And as an open question to anyone on the on the panel, while the ONS is getting its house in order um and while it will take some time to feed through to the transformed labor force survey, are there existing data sets, other data sets out

There that could enhance your decision-making if you were to access them? And what difference would they make? Would anyone like to on that?

>> Miss Green.

>> Yeah, sure. So um as you know, we already look at a host of different series um on the labor market in particular to get a clearer picture of what's going on. So we don't just rely on the ONS data. We look at other series as well. Co was a a a turning point for many economists and finding new real-time sources of that kind of information. Um so we already look at that. I would say generally in a if I were to make a plea for data um to my mind one of the biggest questions we have is around consumption in the UK uh because it hasn't rebounded as you might have expected the savings rate has remained really high and we do expect consumption to come in and and the savings rate to fall but that is I think a vulnerability in our forecast so understanding the UK consumer better would would be really helpful um there are a lot of data series that exists in the private sector so um credit card companies. Um, the banks actually have a lot of data on balances. Um, getting access to some of that data in an anonymized fashion just so we have a sense of what people are spending money on when would be really helpful.

>> Thank you. Anyone anyone else like to add to that?

>> Yeah, I think I I fully support that. I mean when we are now trying to fill gaps, we have to take data from many different sources, amalgamate, think about the signal to noise ratio. How can we get some estimate of what's happening to the labor force or what's happening to consumption? Um, but that process is only as good as the data that we put in in the first place. So, if we can get access to more accurate, more granular data of the kind that uh Megan Green just mentioned, I think that would be very helpful to us.

>> Thank you. I think the committee's heard your plea for more access to commercial data.

>> So, I mean, so Gladelli, I mean, with all the work you're doing with Bananki and changing the modeling, are you looking at other data sets? Is there any bar barrier to to getting that information?

>> Yeah, I mean we are obvious take a step back. We're in a sort of very interesting time I think in in the world of of data. I mean look obviously the sort of gold standard is to have national statistics that are reliable timely you know and the onus have a program to get back to to to delivering that and we fully support them and and want that. we've as you as both um Megan and Alan have said there's this there's other sources of data that are really useful and actually I I think as in particular as we see technology change in this space I think actually there's going to be a huge amount of data available if you think about what AI is going to be able to deliver in terms of being able to access and also just draw insights from larger data sources going to be much larger data sources and there's going to be more insight that can be drawn out of them more easily we are thinking very um carefully about how to do that as we implement the changes that we are doing anyway to the structures of how we do analysis through the beneu. in a sense there's a real opportunity for us here to do them together whereas in a lot of organ you know because we'll be making structural changes to the way in which we do our analysis as well as our technology and I've talked before and and said before a big part of the banani review will actually be you know some of the kind of heavy lifting on the underlying platforms and how you manage data how you manage information how you run your modeling all those sorts of things so I think we've got a really good opportunity there to make sure that we sort reform reform ourselves that take advant of both these technological advances that will enable more data and better insights from the data but also feed that straight through to our analysis. So I mean yes and frankly it's

>> what power what powers do you have to to acquire data because you obviously any presumably any government data you can get

>> yeah I mean there are look there are barriers that we face particularly around where data um you know there's a lot of issue you know commercial data obviously there's a a set of um sets of sort of restrictions around that we don't own it is of value to people in the private sector you know they might not want to give it to us uh so you know there's questions there's issues around that there's obvious

>> you say issues you mean they won't give it to you or you have to pay for it.

>> Yeah, we I mean there's a cost to you know the production of data is uh you know is a business um and there lots of you know and it data is increasingly valuable in the economy and actually one of the things the that that happened fairly recently on GDP is the value of data was put into the economy and you can see the value and that will only increase over time right as we all see that just having more information if you look at you know tech companies and if you look at some of the investments in technology for example some banks are making it's because they see the value of that data right the commercial value. Um, you know, we're a public sector organization. There's there's limits to what we should be paying for for data and what we can pay for data. You know, we have to deliver value for money. So, there's a set of issues around that. There's obviously a set of issues around sort of confidentiality and personalization that need to be need to be thought about. So, you know, it look data isn't free. We have to navigate this well. It also, you know, there comes a set of requirements. So we are thinking carefully about it and we are looking at what other ways we can get more data in a way that is you know cost cost effective um and is genuinely useful because the other thing I would say is there's an awful lot of data out there that wouldn't be that useful and you could spend hours um looking at trying to extract signals from what is noise. So we have to be quite um I think quite uh focused on what's valuable to us and what can tell us.

>> I can just make I mean two quick points I if you don't mind I'make I think

>> you think obviously the data has to sort of evolve to reflect the way the economy changes and society changes I highlight two points here I mean CLA's mentioned one of them which is the rise of so-called intangibles in the economy so these are things like data these are the things that aren't sort of bricks and mortar and machinery um and capturing those properly so the value of data the value of you know it for instance is is is is important because you otherwise we end that the economy is actually growing but we're not capturing it.

>> The second one is is is you we saw this a little bit in the last inflation number is what we call dynamic pricing. Um, so you may have seen the last inflation actually well actually the number 3.8 wasn't it's what we were expecting so it wasn't a surprise to us but if you looked at the services number there was a big airfare component in there. Now if you we've all had this expense if you if you buy a if you book a hotel buy a airfare book a concert ticket these days you're subject to dynamic pricing. In other words, the price varies from hour to hour um because that's the way they sell the things. Uh and the question for us is is that introducing more volatility

>> and I was wondering if anyone on the panel could speak to the question of are there precedents or things that are forms of data sharing we could learn from other central banks or other national statistical bodies where there is access and that the committee or the government should be looking at these precedents.

>> So it's definitely the case that other countries use admin data more than we do um and because they have built into their systems greater access to administration admin data and you know we understandably have a lot of restrictions around it with particular issues around sort of privacy and and data sharing in some other countries that is that is used more um you know AC across the public sector actually uh I mean the benefits there would be benefits to us there would also be huge benefits to other parts of the public sector I think if this information could be used. So that that's one area um that I would definitely uh say more could be done on. Other countries do also obviously think much more about some of these questions around dynamic pricing. You see a lot more of it in other countries actually as as well and actually what's happening to pricing is is changing very rapidly again in response to technology um particularly actually in some uh more emerging economies or economies that just use more technology in a lot of their pricing platforms. So um you there are differences and we can learn from from some other some other countries.

>> Yeah.

>> Thank you. Thank you very much. Chris Coplin.

>> Thank you chair. Um Governor the uh the OVR implies that um stopping sales of QT uh stopping QT could um uh create 18 billion a year of extra fiscal hedge room for the chancellor and save us all significant taxes as taxpayers. Um, do you agree and understand that's outside the rem of the banking in terms of considering fiscal uh issues, but you're about to set QT for the rest of the year. Um, so would you consider uh suspending QT given current market conditions given that the uh I believe the ECB and the Fed have done.

>> Well, let me say two or three things on that. First of all, I was just to reassure you the decision we're going to take in the next few weeks is is an open decision. I want that to be very clear. Um nothing sort of uh nothing closed about that decision. Um on the on the point about the cost of QT, I I think I've made this point before, but I will make it again. I I'm afraid I do have to push back on that point because you either get the cost through the carry cost of the bonds. In other words, because the current the interest rate the the coupon of the bonds, the interest rate on the bonds is lower than the current uh official rate or you get it on the discount of selling. And if markets are efficient, um those two things equalize. Now, the cost can come through at different points in time, but they equalize over time. Over time, they equalize.

>> So, just to be clear, there isn't a sort of pot of gold out there that isn't isn't there if you do one thing, but is there if you do another thing. I think that's just a very important point to uh to bear in mind. The third point I'll make I I think I have I may have made this in the Lords before but I'll make it again. Um in terms of the increase in bond yields I I do not think that QT is the cause of this by the way. Um, you know there's a strong global element to it. Um, what I would say though is that obviously in this open decision we're going to take the interaction of that effect with that decision. Yes, it's something we will obviously you look at very seriously. I've said that before say it again.

>> But you would you agree that's why I said the fiscal rules um in terms of if you suspended the sale now that would create an extra 18 billion of headroom under the fiscal rules and of course maybe that would come through later.

>> I think fiscal rules work that simply but I'm not the expert on fiscal rules. Um, so because obviously the fiscal rules look over time they're not a they're not a sort of snapshot in time thing.

>> Thank you very much. You and

>> um thank you chair governor. In your uh in your recent monetary policy report you have a section describing how bank staff have updated their analysis of the effects of uh QT on guilt yields which thus impacts then as Chris um uh sorry as my colleague Chris Cogland mentioned impacts the cost uh of borrowing and for for the government. Um, it just concerns me that your um bank um estimate now suggests there'll be6 billion pounds in lifetime costs um which is a revised estimate and you call that a modest increase. Um, to my constituents I think 16 billion would not be considered modest. It would fund for example an entire Elizabeth line 40 new hospitals. This is a kind of quite large scale of government borrowing I think for any of our constituents to uh sorry government spending for any of our constituents to consider. So, um I wonder if you could just describe a bit the process behind that that the choice of that label um and also the updating of those uh of of those estimates.

>> Well, our staff as they do every year as we sort of prepare for the decision we're going to take shortly um do what they think and is an estimate of the impact of QT in terms of yields. And I think they've moved the range from 10 to 20 basis points to 15 to 25 basis points. So that's that's the the change in their estimate of the range. These things are all by the way approximate but that's their that's their estimate. Now that is over again over the this is over the lifetime of the of the portfolio which is is a long lived portfolio. Um, I look I I agree with you that that number as a headline number is not a small number that not in any sense going to dispute that number but it you know it comes from an estimate of a lifetime cost and that lifetime is a long lifetime. The other thing I would say on that front and we're we're working on this at the moment because it's in the letter that I wrote to Richard Ty that I copied to the committee that there is another element to this which we yeah we're going to have a go at estimating because I you know it is important. We're talking here about not about the cost benefit of quantitive easing and quantitative timing because then you'd have to do a whole economy modeling exercise and it's a very complicated exercise. This is about the cost of the cost of debt servicing uh cost of guilts as it were. And the numbers that get get published through this are partial. And they're partial for the following reason that the government um got a benefit from QE programs because of the fact that they lowered the cost of debt

>> and the they lowered the cost of debt issuance. And it was particularly important to the UK because the UK has been issuing much longer dated debt. um now because that that benefit then lasts for the the life of that longer dated debt and so that's an important thing to capture because that's a that's a benefit that is in the cost of debt servicing it's embedded in there. Um, now to estimate that cost of course you have to do some sort of counterfactual exercise in which you say what would it what would it have been had that not happened and we're working on that because I'm conscious that I think you know we've got a slightly one-sided view of the world at the moment in in those in those debt servicing cost numbers.

>> I I think we all understand that it's not in the power of the bank to travel back in time uh or of this committee and that's not the counterfactual I think I was um trying to consider

>> the benefits coming through now. I mean it's it's going to be here now and for years to come though.

>> The the decision that the MPC are facing later this month is about active versus passive quantitive tightening and the NVR piece that you linked to in that report suggests the costs of active QT as opposed to passive QT could be upwards of 60 billion a year and I wouldn't choose the adjective mod. What would you what would you choose to describe that?

>> No, I look as I said earlier in an efficient market these two things actually should be the same over time

>> over time. Um, so I I really do push back on that that number.

>> Okay, thank you very much. Um indeed I mean the issue of quantitive easing was a big discussion, quantitive tightening a big discussion at the end of a hot afternoon. Perhaps not the time to get into enormous detail, but it's something we will obviously return to because you've got your decision for a start coming up uh uh soon and that will give us something to talk about next time uh we see you governor. Um, but can I thank our witnesses for their time and we had a very interesting discussion particularly we heard of course the governor's concerns about the independence of the Federal Reserve. Um, and I think we're grateful that we have an independent Bank of England uh and we're here to challenge you but that your independence is important. Uh, we discussed the three-way split on the MPC uh in its views on interest rates and how the governor navigated uh that with the first time having a second round uh vote. We also discussed the significance of the rising 30-year guilt yield of course just now as included and we explored the long-term outlook for interest rates, the impact of an aging demography and how international tariff developments are affecting the UK. So quite a wide ranging session. Um, as ever we thank uh the governor of the Bank of England, Andrew Bailey, uh, Cla Lombardelli as deputy governor, Professor Alan Taylor, independent member of the MPC, and Megan Green, similarly an independent member. Can I thank you for your time? Order. Order.