A Bank of England policymaker has called for interest rates to be cut five times in 2025, warning that Britain's inflation outlook faces mounting risks from global trade disruption. Alan Taylor said rates needed to fall at a faster pace given the "deteriorating outlook" for the economy.
Taylor, an external member of the Bank's Monetary Policy Committee (MPC), made the comments during a speech at the European Central Bank Forum in Portugal on Wednesday. He was previously outvoted in June when he called for a quarter-point cut, with the majority of the MPC deciding to keep rates on hold at 4.25%.
Soft landing under threat
The Bank had reduced rates in May by a quarter point from 4.75%, but Taylor had pushed for a steeper half-point reduction. He warned that Britain's expected soft economic landing was now "at risk" due to weakening demand and trade disruptions.
"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."
Energy prices remain uncertain
Taylor acknowledged that energy prices "remain a big unknown" but stressed they were not the "only factor in play" affecting the economic outlook. He said the inflationary impact of the hike in national insurance contributions and price rises should "fade out" in the new year.
However, he warned that weakness in the economy was building despite these temporary factors. His assessment of the deteriorating conditions led him to advocate for more aggressive rate cuts than the market expects.
Five cuts wanted for 2025
On his June call for back-to-back rate cuts, Taylor explained his reasoning for wanting faster monetary easing. "My reading of the deteriorating outlook suggested to me that we needed to be on a lower rate path, needing five cuts in 2025 rather than the market-implied quarterly pace of four," he said.
Taylor's position puts him at odds with market expectations, which anticipate four quarterly rate cuts throughout 2025. His call for five cuts would represent a more aggressive approach to monetary policy as the Bank seeks to support economic growth amid mounting global uncertainties.
(PA/London) Note: This article has been edited with the help of Artificial Intelligence.
