Bank of England official Alan Taylor has indicated that the central bank could implement three more interest rate cuts in the coming months as inflation approaches its two percent target and unemployment concerns mount.
Monetary Policy Committee Member Outlines Rate Cut Trajectory
Alan Taylor, an external member of the Bank of England's Monetary Policy Committee who has consistently advocated for larger interest rate reductions over the past eighteen months, suggested that higher unemployment and slowing wage growth could prompt the Bank to cut rates three additional times.
"I have become more reassured that we are proceeding towards inflation normalisation at a reasonable pace," Taylor stated. "The risks are shifting to lower inflation and higher unemployment. We might have two or three rate cuts to go before the theoretical neutral level."
Inflation Data and Economic Indicators
The Office for National Statistics revealed last week that inflation eased to three percent in the year to January, down from 3.4 percent the previous month. Lower prices for petrol, bread, and airfares contributed to this decline, though Taylor acknowledged persistent risks around services inflation, which remains a key focus for policymakers.
Taylor expressed concern about the jobs market "converging on a pessimistic outlook" and noted that weak productivity growth could flatten the UK economy, with lower interest rates potentially providing necessary stimulus.
Additional Inflation Risks and Policy Considerations
The Bank of England official also highlighted the possibility of inflation dropping below the Bank's two percent target, creating additional complexity for monetary policy decisions.
When questioned about whether unemployment would remain structurally high and whether more accommodative monetary policy was needed to prevent recession, Taylor referenced his previous warnings about recession risks as justification for faster rate cuts than preferred by most MPC members last year.
Upcoming Treasury Committee Appearance
Other Bank of England officials, including Governor Andrew Bailey, Chief Economist Huw Pill, and external member Megan Greene, are scheduled to appear before the Treasury Committee on Tuesday afternoon to discuss February's monetary policy report.
Policymakers are expected to face questions about the pace of interest rate reductions and the potential impact of new US tariff announcements following a Supreme Court ruling on emergency rates.
US Tariff Implications for UK Businesses
Addressing an audience of bankers and City analysts, Taylor suggested that markets should look beyond the new flat 14 percent US tariff rate, which could disproportionately affect UK businesses, and recognize that higher tariff levels across various sectors are likely to persist.
"We've moved to the US having a high tariff regime," Taylor explained. "If you calculate the new average tariff, it's moved a bit but the overall tariff has not changed much. We should expect this shock to play out over many years."
Government Response to Trade Concerns
The UK government is working to protect a trade agreement secured with the US in May last year that established lower tariffs for carmakers and pharmaceutical companies.
A Number 10 spokesman confirmed on Monday that discussions with Trump administration officials are ongoing, with efforts focused on understanding how the new flat tariff rate would impact UK businesses. When asked about potential reciprocal tariffs, the spokesman stated that "everything was on the table."
