Could the central bank bring rates lower in November?
Bank of England decisionmaker Alan Taylor called again for a faster pace of interest rate cuts, saying on Tuesday that the risk of a hard landing for the economy is growing.
Taylor, who sits as an external member on the central bank’s Monetary Policy Committee, said a “bumpy landing” was now more likely than soft one, and suggested the gloomy economic outlook warranted further rate reductions.
The policymaker was speaking at King’s College, Cambridge, where he said the Bank may have kept rates too high for too long to combat inflation as the UK emerged from the COVID-19 pandemic.
“By maintaining what I think is a too restrictive path of interest rates, we may have braked too hard, such that inflation cannot smoothly return to target with the economy close to potential,” he said.
Taylor said a hard landing was a “remote and low probability event” 12 months ago, but now looks possible. “The risk is rising,” he said. “The probability of this outcome is now not trivial.”
While other BoE officials including Catherine Mann have flagged the risk of lowering rates too quickly, Taylor has consistently voted for rate cuts since he joined the panel last year.
The central bank has cut rates five times since last year, lowering its policy rate by a full percentage point to 4.0%.
But Mann, speaking last week at London’s Resolution Foundation, said rates would probably need to stay where they are for now to lower the risk of another uptick in inflation.
“High inflation itself is behind scarring, income uncertainty, and weak consumption growth,” she said. “Therefore, monetary policy needs to continue to focus on reducing inflation to achieve the environment of price stability.”
Taylor, though, does not agree with that synopsis. “As I see it, in an economy with rising unemployment and weak demand, wage settlements will be pushed down – and wage-led domestic inflation will not rekindle an upward spiral,” he said on Tuesday.
The Bank has two more scheduled decisions on interest rates in 2025: one on November 6, and the last of the year on December 18.
