Bank of England policymaker urges faster interest rate cuts
Bank of England dove Alan Taylor has urged his colleagues on the Monetary Policy Committee to vote for faster interest rate cuts to allow a “soft landing” on the inflation path.
Bank officials voted to hold interest rates at 4.25 per cent in June, with inflation bouncing back up to 3.4 per cent in April and May. Taylor was joined by deputy governor Dave Ramsden and fellow external member Swati Dhingra in voting for a 25 basis points cut.
In a speech delivered in Portugal, Taylor urged the other six voters to consider the impact that global trade tensions have had on demand, given their effect on growth.
Taylor said the expected slump in demand due to a higher global average tariff rate should move rate-setters into voting for more cuts to guide price growth down to the Bank’s two per cent target.
“Previously, I had seen a UK soft landing in the cards, with some remaining upside risks to inflation from the bump in 2025,” Taylor said.
“Now I see that soft landing as being at risk, and greater probability of a downside scenario in 2026 pushing us off track as demand weakness and trade disruptions build.”
Taylor suggested energy shocks remain a “big unknown” given a recent jump and fall in oil prices after Israel and Iran fired missiles at one another over two weeks.
He also suggested that Chancellor Rachel Reeves’ tax hikes on employers, which kicked into effect in April, would “fade out in the new year”.
Fears of a further weakening of the labour market meant the Bank had to consider accelerating its interest rate-cutting cycle.
Interest rates
Taylor also said the Bank should “de-emphasise” the central forecasts it produces, while the MPC should be able to “find a vehicle” for communicating where interest rates should settle in the long run.
Several economists have criticised the Bank’s usage of signalling its policy approach by using the phrase “gradual and careful”.
“I wouldn’t say we were particular fans of this word salad they were using last time, that ‘careful and gradual’ [phrasing]. Certainly, I don’t think we think it’s particularly important or a particularly good way of signaling things. But obviously the MPC thinks it is a very important way of doing it,” Oxford Economics’ Andrew Goodwin told City PM in May.
Taylor’s comments come as Governor Andrew Bailey has struck a more dovish tone on interest rates by pointing to “softening” in the labour market, with vacancies falling and unemployment ticking up to 4.6 per cent.
Bailey also warned business investment decisions were getting delayed while global turmoil was influencing him less due to the uncertainty of policies unveiled by President Trump and other leaders.
“Because of the sheer unpredictability, it’s not that I’m ignoring the world, but I’m not putting that higher weight on it, because, frankly, it is so unpredictable at the moment that, as we saw in the last 24 hours, it can easily change overnight.”