output database ( 2016 release ). retaining some of these positions may be challenging as evidence indicates that trade in intermediates appears to be more sensitive to trade costs such as tariffs. given that proximity also appears to be more important for trade in intermediates than for trade in final goods, international substitutes for european buyers of uk intermediates, as well as european suppliers of intermediates into uk supply chains, may be more difficult to source. these effects and the experience of the past 30 years prompt the question : if globalisation is disinflationary, won ’ t brexit be inflationary? certainly, this process of de - integration can be expected to steepen the phillips curve given disruptions to in - bound value chains from europe and reduced contestability of uk labour and product markets. in addition, the reallocation of capital to suit new trade arrangements will take time, weighing on growth of the economy ’ s supply capacity while it proceeds. moreover, any increase in tariffs on uk imports, or increases in the cost of imports due to broader access restrictions, would cause the phillips curve to shift up temporarily as those higher costs are passed through the supply chain. these inflationary effects may be reinforced by developments in the labour market. as in other advanced economies, the expansion in global labour supply has forced a painful period of adjustment for the most the share of uk intermediate exports to the eu for which the final product remains in the eu has fallen by 6 % since 1995. both these findings are reported in miroudot, s, lanz, r and ragoussis, a ( 2009 ), ‘ trade in intermediate goods and services ’, oecd trade policy papers, no. 93. all speeches are available online at www. bankofengland. co. uk / speeches exposed workers in the uk ( who are not always the lowest skilled ) ( chart 14 ). this reduces inflationary pressures in the economy as a whole. chart 14 : relative wages of workers exposed to global labour markets squeezed notes : the chart shows the estimated loss in earnings since 1991 for a worker at a company in the manufacturing sector with a high exposure to rising competition relative to a worker with a low exposure, expressed as a share of their annual earnings in 1991. source : professor david autor, ‘ economic and political consequences of china ’ s rise for the united states : lessons from the china shock ’, ifs annual lecture 2017, 22 june 2017. higher levels of migration in the uk have

offers a variety of explanations : the increased anchoring of expectations by a credible monetary policy ( bernanke ( 2010 ) and imf ( 2013 ) ) ; the continued decline of the responsiveness to economic slack ( imf ( 2013 ) ) ; the increased downward wage rigidities in a recession that bend the wage phillips curve ( daly and hobijn ( 2014 ) ) ; the higher forwardlooking expectations of marginal costs in a dynamic stochastic general equilibrium ( dsge ) model ( del negro, giannoni and schorfheide ( 2015 ) ) ; a fall in total factor productivity and increased costs of working capital ( christiano, eichenbaum and trabandt ( 2014 ) ) ; a regime switch in the slope explained by sticky prices and sticky information ( murphy ( 2014 ) ) ; or the role of higher mark - ups of liquidity - constrained firms ( gilchrist, schoenle, sim, and zakrajsek ( 2015 ) ). others pointed to important measurement issues and suggested e. g. using shortterm unemployment to measure slack ( gordon ( 2013 ), krueger et al. ( 2014 ) and ball and mazumder ( 2014 ) ) or household expectations from surveys to relevantly measure inflation expectations ( coibion and gorodnichenko ( 2015 ) ). most of these approaches, besides solving the puzzle a posteriori, also provide new methods that promise to improve future inflation forecasting, even in the context of reduced - form phillips curves. the use of short - term unemployment 2 or household inflation expectations that are closer to those of economic agents, are two examples of promising developments. it is also helpful to introduce time - varying coefficients or regime - switching estimates, to account for many possible sources of non - linearity in the phillips curve. for headline inflation, external supply shocks, for example in commodity prices, have played a significant role but the two highlighted puzzles also apply to core inflation. very importantly, the trend for a weaker relationship with economic slack applies also to core inflation. most of the papers i have cited use the consumer price index ( cpi ) without energy and food or the gdp deflator as inflation variables. only a few also use headline inflation. core inflation reflects mostly domestic factors, as indirect effects from external developments are muted and take time to operate. that is why i consider it more useful to focus on core inflation dynamics for the purpose of discussing their consequences for monetary policy