Treasury Committee
Tuesday 8th September 2026
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14:20
Speaker 1
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Speaker 1
Order, order! Welcome to the Treasury Select Committee on Tuesday, the 8th of September 2026. We're pleased today to have the Monetary Policy Committee and the governor of the Bank of England in front of us to discuss the recent rate setting and also just what's going on in the world that's having an impact on the economy. So I'm pleased to welcome from my left to right Professor Alan Taylor, who's an external member of the Monetary Policy Committee, the governor of the Bank of England, Andrew Bailey, the deputy governor for markets and banking at the Bank of England, Sir Dave Ramsden and Megan Green, who's also an external member of the Monetary Policy Committee.
So obviously , we're going to talk about the rate setting meeting, but I want to touch on the stuff going on in the world. And talking of the world, we're really pleased to welcome special guests from Queensland today to see us in action. And also, I think Mr. Bobby Dean has some guests as well.
So obviously , we're going to talk about the rate setting meeting, but I want to touch on the stuff going on in the world. And talking of the world, we're really pleased to welcome special guests from Queensland today to see us in action. And also, I think Mr. Bobby Dean has some guests as well.
14:21
14:21
Speaker 1
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Speaker 1
We'll let you we'll let you know your score out of ten later. Yeah. And I should just say we're slightly light on numbers because a number of our colleagues have been promoted into government roles or roles, and we are still waiting. The pace, the pace of elections is not fast here. So we have some of that. So it's not that no no no comment on on our witnesses. We're just a bit light on our numbers today.
So I wanted to start, if I could, with you, governor, obviously last time you were in front of us, we talked quite a lot about the Strait of Hormuz and the impact of the economic repercussions of what's going on there. I mean, this is it's now we're well embedded. This this war in Iran is not stopping. There's. So I really wanted to see if you could just explain how that has had an impact on your thinking.
And then and specifically the difference between crude going through the Straits and, and refined products and, and the impact that has perhaps particularly on the second. Yes, yes.
So I wanted to start, if I could, with you, governor, obviously last time you were in front of us, we talked quite a lot about the Strait of Hormuz and the impact of the economic repercussions of what's going on there. I mean, this is it's now we're well embedded. This this war in Iran is not stopping. There's. So I really wanted to see if you could just explain how that has had an impact on your thinking.
And then and specifically the difference between crude going through the Straits and, and refined products and, and the impact that has perhaps particularly on the second. Yes, yes.
14:22
Meg Hillier
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Meg Hillier
So that's actually probably one of the developments since we were last here actually as well. So I'll certainly touch on that. Well, as you say, first of all, it's slightly obvious the conflict is still going on and it is also causing I mean, it's causing obviously a high level of high level of energy prices and also quite a bit of volatility in energy prices. And that volatility and that volatility is feeding through into financial markets. And nearly all of that volatility is really you can trace back to to events in the Gulf.
I mean I think it's fair to say that we have you know we've got higher energy prices. They could be higher still, I think I would say. And so a number of things have gone on. The Strait obviously remains largely closed. We think some some is getting through but not not huge amounts as I understand, and particularly talking to my opposite numbers. I've just been in Basel this weekend, so I've had conversations with them.
The more use is being made of pipelines in the area to ship it. But as you saw this weekend, I mean, even that's a problem in some ways because the Houthis have attacked the Red sea area, which is where Saudi pipeline goes to. There have been emergency stock releases, quite big emergency stock releases, and they've obviously helped. Obviously, they can't go on for you know, I think they can. The current ones run till about November.
Probably some increase in production oil in other parts some other parts of the world. And then as you say, the other development has been the so-called crack spread. And that's the refined products pricing because, you know, we say to people, I mean, I speak for myself, we don't actually consume barrels of oil. We consume the products of barrels of oil. And the crack spread is, is obviously is really the, the wedge between the crude price and the refined products prices.
And that spread has increased that that spread is high at the moment. I think one of the reasons for that, and I'm going to be very clear, I am not in any sense saying this as a criticism. I mean, the Ukrainians, of course, have been successful in their attacks on Russian refining capacity, and Russia does have quite a concentration of refining capacity. And I think the last I mean, they're always estimates with Russia, but Russia's capacity may be about 60% under.
It's it's it's under its normal capacity. And that is having some effect. Therefore, on on the crack spread, there's probably some other things going on. But you're right. So quite a bit of the crack spread is actually not to do with, you know, the Strait of Hormuz. I think it's important that we, we, we recognize here that there are other things, even if there was a, you know, some suddenly some settlement in the strait, you would still probably have the crack spread issue.
I mean I think it's fair to say that we have you know we've got higher energy prices. They could be higher still, I think I would say. And so a number of things have gone on. The Strait obviously remains largely closed. We think some some is getting through but not not huge amounts as I understand, and particularly talking to my opposite numbers. I've just been in Basel this weekend, so I've had conversations with them.
The more use is being made of pipelines in the area to ship it. But as you saw this weekend, I mean, even that's a problem in some ways because the Houthis have attacked the Red sea area, which is where Saudi pipeline goes to. There have been emergency stock releases, quite big emergency stock releases, and they've obviously helped. Obviously, they can't go on for you know, I think they can. The current ones run till about November.
Probably some increase in production oil in other parts some other parts of the world. And then as you say, the other development has been the so-called crack spread. And that's the refined products pricing because, you know, we say to people, I mean, I speak for myself, we don't actually consume barrels of oil. We consume the products of barrels of oil. And the crack spread is, is obviously is really the, the wedge between the crude price and the refined products prices.
And that spread has increased that that spread is high at the moment. I think one of the reasons for that, and I'm going to be very clear, I am not in any sense saying this as a criticism. I mean, the Ukrainians, of course, have been successful in their attacks on Russian refining capacity, and Russia does have quite a concentration of refining capacity. And I think the last I mean, they're always estimates with Russia, but Russia's capacity may be about 60% under.
It's it's it's under its normal capacity. And that is having some effect. Therefore, on on the crack spread, there's probably some other things going on. But you're right. So quite a bit of the crack spread is actually not to do with, you know, the Strait of Hormuz. I think it's important that we, we, we recognize here that there are other things, even if there was a, you know, some suddenly some settlement in the strait, you would still probably have the crack spread issue.
14:25
14:25
Meg Hillier
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Meg Hillier
That's a concern. I think that's a concern particularly for US refineries. I think they're working. They are working at high levels. There's also been the closure, I think, of 1 or 2 refineries in the US which was planned beforehand. So yes, that's another factor in this, which could cause a sustained elevation of the crack spread.
14:41
14:41
Meg Hillier
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Meg Hillier
And I was just going to say on this, this maintenance point is really more pervasive. And, you know, to that will inform all of our judgments. But but, you know, some of us are taking more, you know, Megan and I just have a, you know, a different perspective on that. But we're looking at the same assessment.
14:41
Bobby Dean
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Bobby Dean
I wanted to come back to, to you because I just looked through the papers and I saw your history of voting. You wanted to hold. At other times when other members on the panel wanted to cut. So is this about sharing perhaps a similar analysis about the risks to second round effects, but having a different starting position, a different perspective on what the neutral rate might be? Is that a fair explanation of your position versus other members?
14:41
Speaker 2
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Speaker 2
Yes. So I was going to say, and I don't want to speak for my colleagues, but I don't think any of us think we should wait until we have definitive evidence of second round effects to act. I think we all know that that would be too late, but I do think we have a different perspective about our starting point. So as whereas some of my colleagues felt reassured that the disinflationary process was underway, you know, at a pace that was acceptable to them, I was more worried about it.
If you look at our agents pay settlements, for example, you know, pay settlements will be a bit lower based on what our agents are telling us this year relative to last year. Given that we expect inflation to accelerate, I think it could turn out that they're not that much lower next year, though. It's too early to say, of course, but that would suggest that the disinflationary process on wages at least, is stalling out. I've been worried about inflation.
Household inflation expectations, which before this conflict hit, were at the absolute top of the band. You could possibly explain using historical relationships between inflation, outturns and inflation expectations. So that concern me in light of the fact that we've had two supply shocks, two major supply shocks hit the economy. And now this is the third one. We've done a lot of analysis looking at sensitivity to inflation. And, you know, if inflation gets above a certain threshold, households and businesses tend to notice it more.
And that informs their inflation expectation setting. You know, I think we'll be in that threshold this year, possibly part of next year. So that worries me in terms of feeding through into second round effects as well. So we have different starting points. And I think that that goes a long way to explaining our views on the current conjuncture.
If you look at our agents pay settlements, for example, you know, pay settlements will be a bit lower based on what our agents are telling us this year relative to last year. Given that we expect inflation to accelerate, I think it could turn out that they're not that much lower next year, though. It's too early to say, of course, but that would suggest that the disinflationary process on wages at least, is stalling out. I've been worried about inflation.
Household inflation expectations, which before this conflict hit, were at the absolute top of the band. You could possibly explain using historical relationships between inflation, outturns and inflation expectations. So that concern me in light of the fact that we've had two supply shocks, two major supply shocks hit the economy. And now this is the third one. We've done a lot of analysis looking at sensitivity to inflation. And, you know, if inflation gets above a certain threshold, households and businesses tend to notice it more.
And that informs their inflation expectation setting. You know, I think we'll be in that threshold this year, possibly part of next year. So that worries me in terms of feeding through into second round effects as well. So we have different starting points. And I think that that goes a long way to explaining our views on the current conjuncture.
14:42
Bobby Dean
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Bobby Dean
And governor, could I build on your comments about sort of the market curve and pick up on something you said in the press conference where I believe you said that the market curve is entirely consistent with our reading of the economy and for for those that haven't seen the market curve, that's kind of edging upwards, expecting the rate to go upwards. But you also said in the same press conference that please do not think the Bank of England is edging towards a hike.
Yes. Could you bring some clarity to those two? Seemingly contradictory, but I'm sure not. Well, I'll
Yes. Could you bring some clarity to those two? Seemingly contradictory, but I'm sure not. Well, I'll
14:43
Meg Hillier
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Meg Hillier
try to explain why. I don't think they're contradictory. Yeah, no of course. So let's start with the first one. The first one is a conditional statement, which I think is sort of the normal type of statement we make. And it's this. And it really reflects the discussion we've just been having, which is the risks, I'm afraid, are on the upside. And we made this point very clearly in the report. I think most of us actually had it in our individual paragraphs.
I certainly did, and that's really the risks coming from energy prices, because there's really two parts to this discussion has already revealed this. There's the question of where are energy prices going? Hugely uncertain. And then there's this question about the second round effects and the transmission of those prices into into underlying inflation, which as you can see, there are different views on. But I'm afraid on the first one, the risks are on the upside.
And I mean, going back to the first question we're seeing that I think have to be honest with you on that, the market, when you look at the market curve and when you sort of break the market curve down as we can do, because in our so-called Map survey, we also ask the market what they think we're going to do and then how that relates to the curve. You know, they've got essentially a risk premium in there, which is the difference between those two things.
And I think that's my comment to the press conference, was that I think that's entirely consistent with the view that the risks are, I'm afraid, on the upside here. Now, that's a conditional view, because that's a view that if we get a sort of persistent energy market effect, that's where we will, I'm afraid, be going to your second quote, which was the question I got was, are you sort of just gradually going towards a rate increase? That, to my mind is, is, is, is putting an unconditional question, which is are you, in fact pursuing a policy which has a rate increase? It's just a question of when.
And I draw a very sharp distinction between those two things. And I'll bring in the question of what Chair Walsh has been saying in the US, because his point about guidance, because forward guidance, I think, takes you is, is an attempt to take you from the conditional world to the unconditional world. And I agree with Chair Walsh, and I think that's quite dangerous. You know, we make a lot of conditional statements. I sometimes get quite frustrated privately that a lot of them are interpreted as unconditional statements, but they are conditional because the world is uncertain.
And that's what we're saying. That's the you know, the first one is saying, look, the risks are to the upside. And that's that's a that's a distribution of uncertain outcomes. What I want to dispel is the idea that we've really got a secret plan. We know what we know where we're going to go to. So it's unconditional. That's the thing I.
I certainly did, and that's really the risks coming from energy prices, because there's really two parts to this discussion has already revealed this. There's the question of where are energy prices going? Hugely uncertain. And then there's this question about the second round effects and the transmission of those prices into into underlying inflation, which as you can see, there are different views on. But I'm afraid on the first one, the risks are on the upside.
And I mean, going back to the first question we're seeing that I think have to be honest with you on that, the market, when you look at the market curve and when you sort of break the market curve down as we can do, because in our so-called Map survey, we also ask the market what they think we're going to do and then how that relates to the curve. You know, they've got essentially a risk premium in there, which is the difference between those two things.
And I think that's my comment to the press conference, was that I think that's entirely consistent with the view that the risks are, I'm afraid, on the upside here. Now, that's a conditional view, because that's a view that if we get a sort of persistent energy market effect, that's where we will, I'm afraid, be going to your second quote, which was the question I got was, are you sort of just gradually going towards a rate increase? That, to my mind is, is, is, is putting an unconditional question, which is are you, in fact pursuing a policy which has a rate increase? It's just a question of when.
And I draw a very sharp distinction between those two things. And I'll bring in the question of what Chair Walsh has been saying in the US, because his point about guidance, because forward guidance, I think, takes you is, is an attempt to take you from the conditional world to the unconditional world. And I agree with Chair Walsh, and I think that's quite dangerous. You know, we make a lot of conditional statements. I sometimes get quite frustrated privately that a lot of them are interpreted as unconditional statements, but they are conditional because the world is uncertain.
And that's what we're saying. That's the you know, the first one is saying, look, the risks are to the upside. And that's that's a that's a distribution of uncertain outcomes. What I want to dispel is the idea that we've really got a secret plan. We know what we know where we're going to go to. So it's unconditional. That's the thing I.
14:45
Bobby Dean
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Bobby Dean
I also follow up on your comment about mortgage rates. I think you said that they've gone up by the most in the G7. Is there a fear that that's doing some of the work for you at the moment, but that can't hold forever. So at the moment, the kind of that kind of tightening is already having an effect in the economy, which you might want to try and achieve via an increase in bank rate. But that's kind of the effects already have taken place.
But obviously that scenario between the real world effect and your rate setting can't hold forever.
But obviously that scenario between the real world effect and your rate setting can't hold forever.
14:46
Meg Hillier
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Meg Hillier
Well, I think first of all, we have to obviously, we have to take financial conditions into account in our assessment of the economy. And that's data, as it were. And so the tightening of the mortgage, the mortgage rates are an impact, have an impact on financial conditions. And that's a tightening of financial conditions. And obviously that will affect, you know, individual families and people. And we take that into consideration. The market is responding, I would say to reading, they're reading, they're looking at all the same things that we're looking at and drawing the conclusion.
I think that as we do that the risks are to the upside. And so the pricing it in and that gets that gets reflected through into the into the model.
I think that as we do that the risks are to the upside. And so the pricing it in and that gets that gets reflected through into the into the model.
15:01
Speaker 3
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Speaker 3
But you do then have to, you know, you've got to look at, you know, you've fertiliser that you've got to buy for next year started maybe 6 or 7. They've come down a bit. You've got to you know, you've got to take account of the difficulty you've had with yields this year, as you say, already using, you know using up winter silage for feed. And then as, as Andrew was, was saying, and we heard this again when we were in Basel at the weekend.
The great thing about the Basel meetings is you get central bank governors from right around the world. So the central bank governors from some of the countries more exposed to El Nino now, because with us, it will happen with a lag. We're talking about the impact on food prices that they're already experiencing there, some of the biggest producers in the world. So those will feed through to us. Thank you.
The great thing about the Basel meetings is you get central bank governors from right around the world. So the central bank governors from some of the countries more exposed to El Nino now, because with us, it will happen with a lag. We're talking about the impact on food prices that they're already experiencing there, some of the biggest producers in the world. So those will feed through to us. Thank you.
15:02
15:02
Meg Hillier
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Meg Hillier
Well, I'm not an expert in climate science, so I'm not going to I mean, El Ninos do obviously happen. They're not necessarily to do with climate change. This is a big one. I think everybody's saying this is a big one. But again, I'm not sure that link necessarily follows. I mean, we've obviously had very hot summers in this country before. I remember 1976, which was a very hot summer, sadly, on that old.
So I don't know. But, you know, we are I mean, certainly when you look at global food prices, we are seeing more volatility, I would say, and global food prices have have done in recent years. Now, partly because forget about 2022. That was not to do with climate. That was to do with Ukraine actually predominantly.
So I don't know. But, you know, we are I mean, certainly when you look at global food prices, we are seeing more volatility, I would say, and global food prices have have done in recent years. Now, partly because forget about 2022. That was not to do with climate. That was to do with Ukraine actually predominantly.
15:03
Speaker 3
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Speaker 3
But I think it's the case that whether it's you know, we talked about geopolitics or we touched on geopolitics, talked about energy. Now we're talking about food. We seem to be in a world where there are more shocks and more supply shocks. You know, in the short term, the drought and El Nino will have a supply impact because they will affect production. But then back to what we were discussing right at the outset, what actually happens to to consumer prices, which is, after all, what we target will depend on demand.
Obviously, food, you know, is a necessity so that it really affects the cost of living, but also the incidence of these shocks , because you will, you know, it will depend on is it the whole of is it global or can other areas compensate for it? And then how can demand adjust? You know, if meat prices are very high, for example, you were talking about, you know, the the lamb auction you were at. Does that mean that people, consumers substitute away to the extent that they can.
But I would this environment of more and more significant supply shocks is more likely to have a ratcheting up, I think, in prices than a ratcheting down. We haven't seen many positive supply shocks of late.
Obviously, food, you know, is a necessity so that it really affects the cost of living, but also the incidence of these shocks , because you will, you know, it will depend on is it the whole of is it global or can other areas compensate for it? And then how can demand adjust? You know, if meat prices are very high, for example, you were talking about, you know, the the lamb auction you were at. Does that mean that people, consumers substitute away to the extent that they can.
But I would this environment of more and more significant supply shocks is more likely to have a ratcheting up, I think, in prices than a ratcheting down. We haven't seen many positive supply shocks of late.
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Speaker 2
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Speaker 2
Can I just make a simple but important point, I think to see ever rising inflation, you need to see these shocks get worse and worse and worse every year, all else equal. And so what I think we're looking at is more frequent supply shocks. But that does mean there's just going to be a lot of volatility rather than just ever rising inflation.
15:04
Julie Minns
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Julie Minns
15:05
Meg Hillier
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Meg Hillier
Well, there's a box in the MPR on the subject. It does because we are seeing some upward pressure on chip prices. I think the staff have done a done a bit of modelling on it. I think they've come down about 0.1 on the CPI as a potential effect. But again we have to watch this because the whole issue here is obviously is the scale of demand for chips and and how that evolves. So we're going to have to watch this quite carefully.
But yes, it is having an impact and it has an impact. Obviously, it's because it's not just AI because there's chips in lots of things. So to the extent it affects broader chip prices, that feeds through. But our staff have done work on that. Yeah.
But yes, it is having an impact and it has an impact. Obviously, it's because it's not just AI because there's chips in lots of things. So to the extent it affects broader chip prices, that feeds through. But our staff have done work on that. Yeah.
15:05
Speaker 2
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Speaker 2
Can I just add a quick point on that. One thing that nobody knows how to model is how these different supply issues interact with one another. And so I think that's a big degree of uncertainty for all of us. And so this AI piece might interact with the, you know, Iran war piece, which might interact with other supply shocks to create an effect that you can't just model directly.
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Speaker 3
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Speaker 3
Well, we it's fair to say. I mean, look, they've I mean I think you you you give the right framing when you say that they've edged up. A year ago , we said that we thought the overall impact was between 15 and 25 basis points. We've gone up to saying it's an impact of 20 to 30 basis points. And remember, that's in the context of an overall increase in yields of about 350 basis points and an overall increase in term premia, which is the bit that we think Kutty impacts.
Because remember, our principles are all about being gradual and predictable and Kutty operating in the background and bank rate being our primary tool.
Because remember, our principles are all about being gradual and predictable and Kutty operating in the background and bank rate being our primary tool.
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Julie Minns
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Julie Minns
Then we're not well set for a private sector led recovery, are we. Well it's interesting. So one of the things I would say, I mean, we talk about we're talking about second round effects earlier on in terms of the strength of the second round inflation effects. And if as we are seeing at the moment, they are, you know, not as well, somewhat softer , if you think if you sort of think that take the chain of argument through there.
One of the things that we're probably seeing therefore, is companies are taking a squeeze on their margins. In other words, they're not passing on all the increase in costs through to prices. Now the degree. So the question then becomes how much of that can they do? And that will obviously differ from company to company and sector to sector to the extent that they've got higher labor costs. Of course, that and to the extent they've already possibly taken some taken some margin pressure on that front as well, then that will obviously affect their overall decisions.
Now, if you take that into the labour market, as you're saying, I think what we're seeing is a we're certainly seeing a lower rate of hiring. So the labour market is is softening. I would say we've seen that. And I think one of the features of that is, is a lower rate of hiring. And that's the . Message we
One of the things that we're probably seeing therefore, is companies are taking a squeeze on their margins. In other words, they're not passing on all the increase in costs through to prices. Now the degree. So the question then becomes how much of that can they do? And that will obviously differ from company to company and sector to sector to the extent that they've got higher labor costs. Of course, that and to the extent they've already possibly taken some taken some margin pressure on that front as well, then that will obviously affect their overall decisions.
Now, if you take that into the labour market, as you're saying, I think what we're seeing is a we're certainly seeing a lower rate of hiring. So the labour market is is softening. I would say we've seen that. And I think one of the features of that is, is a lower rate of hiring. And that's the . Message we
15:23
John Glen
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John Glen
get. I think certainly I get pretty consistently when we go around the country. So when you say that, we can see that in some a group, particularly obviously youth. unemployment as well. Yes. There is also an argument out there that says that there is greater investment in. productive machinery and assets that mean that we we know that there's a seems to be an. unresolved question around is the UK economy becoming more productive? And there's been a shift away from dependency on on labour.
Yeah. How would . You
Yeah. How would . You
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Julie Minns
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Julie Minns
With reducing labour. So in other words, you could get a mechanical increase in productivity by having fewer people. Exactly. Your point about youth unemployment is right. I mean, I think this is frankly is concerning. And it has risen now. It is, of course, one of the things that I'm afraid does follow if if firms rein back on hiring, because, of course, the thing about the young is that they don't they're coming into the labour market so they don't have jobs.
So therefore, if people aren't hiring, they will tend to be more affected than the . People
So therefore, if people aren't hiring, they will tend to be more affected than the . People
15:25
Speaker 1
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Speaker 1
who are in existing jobs. So those two things would be consistent. But I mean, just back to this emphasis on. resilience that we were talking about earlier. I mean, there does seem to be relatively low hiring, but also certainly compared to some of the fears around the, you know, late last year and then into this year with the shock from Middle East, there's there's less firing as well. So you're seeing just less.
turnover in the labour market. But it is the case that when you look at the aggregate GDP.
turnover in the labour market. But it is the case that when you look at the aggregate GDP.
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Speaker 1
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Speaker 1
But we're not we're not seeing we're not seeing the we're not seeing the, the, the real, the real slowdown in underlying growth that we were. expecting to see from the Middle East conflict. Yeah. Because, you know, this big shock comes along. You would expect, you know, the households do seem to be smoothing through it consumer confidence. It's it's the highest level it's been since August 2024. So were you haven't you certainly haven't seen the.
economy looking as if it's heading towards recession as a . Result
economy looking as if it's heading towards recession as a . Result
15:26
15:26
Speaker 1
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Speaker 1
key point that you haven't seen seen any signs of accelerating. No. But then that comes back to Andrew's big point, which and we published this in our our annex table, you know, UK GDP take real post-tax labour income. between 98 and 2007 . That averaged. 3.3% over that ten years. The average since the global financial crisis is 1.5%. And, you know, the key driver of living standards is productivity.
So the central.
So the central.
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Speaker 3
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Speaker 3
I'm on the spot now. Nor have we heard from Magnus. I would say in the long run context, we've obviously had slowing growth for 50 plus years. I mean, the Golden Age after World War Two, you know, had. 2 to 3% growth rates. And we've seen that edging down. And it took another leg down after the global financial crisis. And for the advanced economies, that's been a sort of steady deceleration. Now what does it take to then get you in a recession.
Well, you know, if you have to go from 3 to 0, that's a lot harder than going from 1 to 0 because the delta is a lot smaller. So I think that's an important piece of context. But in terms of where I was . Six months
Well, you know, if you have to go from 3 to 0, that's a lot harder than going from 1 to 0 because the delta is a lot smaller. So I think that's an important piece of context. But in terms of where I was . Six months
15:43
Julie Minns
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Julie Minns
ago, 12 months ago, when I came before you, I think last year we were seeing I wouldn't I'm not surprised by that, given Chinese take off and. industrialization again. But the question is, you know, to what to what extent is that sort of justified and to what extent is excessive. And we just need better export led goods goods market. The UK has a goods deficit with China is to get to that point.
What I would say is this though, come, let's come back to AI for a moment. Insofar as I certainly think some combination of AI and robotics are going to be the next big step up in, in, in tech, what tend to call general purpose.
What I would say is this though, come, let's come back to AI for a moment. Insofar as I certainly think some combination of AI and robotics are going to be the next big step up in, in, in tech, what tend to call general purpose.
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Julie Minns
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Julie Minns
Which will lead to the next pickup in productivity. It's obviously important that the UK, you know, is in that because that's the best way we can pick up growth. And I think in this partly in this debate on imbalances, because that will shape imbalances. The question of who you know, who gets the sort of the benefits of this will also shape imbalances.
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Speaker 1
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Speaker 1
It's very important that we get, you know, we get there. And it's also really important to look beyond goods to services. Yeah. I mean, you know, talking Andrew's speech in January was focusing on on. tradables at times, but we were talking earlier about the banking sector. You know, we are, I think the the second largest, if not the. biggest exporter of. services in the world.
You know, we have huge comparative. advantage in financial and professional services. And so trade theory does point to how, you know, you, yes, you we're also very good at things like advanced.
You know, we have huge comparative. advantage in financial and professional services. And so trade theory does point to how, you know, you, yes, you we're also very good at things like advanced.
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Speaker 4
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Speaker 4
educational. services surplus. Yeah. Sorry Miss Green. Yeah. I just say this issue of global imbalances comes in and out of Vogue has done for my entire professional career. And it's very much in vogue right now. And I think that's partly because some of the. policy responses to global imbalances have been really front and center and have affected a lot of economies. If you take morality out of it entirely and just look at it all as an accounting.
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Speaker 4
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Speaker 4
know, current account balances reflect national savings versus national investment. And so, you know, I think the governor is right that, you know, you can't just blame this on one country. Actually, it's the balance of savings versus investment in each of these countries and their relationship to others. And so as an economist, you can sit here and very easily say, well, China needs to consume more. Europe needs to invest more in the US, needs to save more.
But all of those things actually have to happen . To
But all of those things actually have to happen . To
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Julie Minns
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Julie Minns
import prices or lose out from the hollowing out of domestic production? I think one of the. So we have seen some some evidence of weakening export prices and weakening global export prices. Sorry. And weakening some softening of UK import prices. I think the challenge here and it sort of comes back to Meghan's point is, what is quite hard to know is if you've seen some pickup in China in imports of goods from China is the other side of that weaker UK domestic production, or is it substitution for other people's exports to us? And that's a much harder .
Question
Question
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Speaker 3
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Speaker 3
I don't have a definitive answer to that question. So do you want. Well, I gave a speech in Cambridge about a year ago on the topic of trade diversion, maybe expecting some of this to come through. I think it's a sort of slow burn issue, because it does take time for global trading arrangements and relationships to to . reconfigure some things are more headline or obvious or salient. For example, battery electric vehicles was an example I gave a year ago, which was starting to come through into the headlines and show up on Main Street, but is maybe even even more obvious now.
And, you know, I think I think that's going to be something to watch, but I think it is already evident, as the governor explained, it's a bit more sort of overdetermined or. multifaceted in the case of trying to. understand how events in China and trade policy in the US interact in this moment. I was just in China in July, and for example, the vehicle situation there, as it was explained to me, is, you know, there's been rapid growth, there's.
inter-provincial competition. If one province has an electric vehicle factory, the next province wants 1 or 2. I mean, this is, you know, in terms of economic history, there was overbuilding of railways and canals in the 19th century. It's not sort of, you know, an unusual phenomenon. So there's been a big increase in supply. Some of it was absorbed. domestically through. promotions for consumers to trade in their old vehicles for new ones.
So I saw a lot of new vehicles on the road. But you can only kind of do that once because once everyone's traded in, like you've still got the production. So now that's hitting global markets. So I think we're likely to see more of that. And it's not just a sort of single sector. It's probably, you know, there are many other sectors where this is not as visible, but it's it's a wave that's coming. As I said, I think in earlier testimony, it's like water finding a level.
If . These
And, you know, I think I think that's going to be something to watch, but I think it is already evident, as the governor explained, it's a bit more sort of overdetermined or. multifaceted in the case of trying to. understand how events in China and trade policy in the US interact in this moment. I was just in China in July, and for example, the vehicle situation there, as it was explained to me, is, you know, there's been rapid growth, there's.
inter-provincial competition. If one province has an electric vehicle factory, the next province wants 1 or 2. I mean, this is, you know, in terms of economic history, there was overbuilding of railways and canals in the 19th century. It's not sort of, you know, an unusual phenomenon. So there's been a big increase in supply. Some of it was absorbed. domestically through. promotions for consumers to trade in their old vehicles for new ones.
So I saw a lot of new vehicles on the road. But you can only kind of do that once because once everyone's traded in, like you've still got the production. So now that's hitting global markets. So I think we're likely to see more of that. And it's not just a sort of single sector. It's probably, you know, there are many other sectors where this is not as visible, but it's it's a wave that's coming. As I said, I think in earlier testimony, it's like water finding a level.
If . These
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