Getting the right directions − speech by Alan Taylor

The Bank of England's newest external member of the Monetary Policy Committee has used his first major speech to argue that the central bank needs to be more responsive to changes in the economic data and less committed to a predetermined path for interest rates.

Alan Taylor, who joined the MPC in 2025, said the experience of the past three years — in which inflation rose sharply, proved more persistent than most forecasters expected, and then fell — demonstrated the limits of the forward guidance that had been a central feature of monetary policy for much of the previous decade. He argued that the Bank should commit less to what it expected to do in the future and more to what it would do in response to different economic scenarios.

Taylor's speech was significant because it came from a member of the committee who is widely regarded as one of its leading intellectual forces. His argument for a more data-dependent approach to monetary policy is likely to influence the committee's deliberations as it considers when and how quickly to reduce interest rates from their current level.

The speech also addressed the relationship between monetary policy and financial stability. Taylor argued that the Bank should be more willing to use its financial stability tools — including the countercyclical capital buffer and sectoral capital requirements — to address risks that might otherwise constrain monetary policy. This was a notable intervention in a debate that has divided central bankers since the financial crisis.