Bank of England policymaker Alan Taylor said the case for further interest-rate increases was not compelling unless high energy costs persisted and spread more clearly into underlying inflation. He judged the current monetary stance sufficiently restrictive and said evidence of significant second-round effects remained limited. The remarks were delivered in a speech on 29 September and represented Taylor’s own view rather than a decision by the Monetary Policy Committee.
The committee voted 6–3 earlier in September to keep Bank Rate at 3.75%. Taylor supported the hold and said additional tightening was not warranted at present. He estimated the neutral nominal rate at 2.75% to 3%, leaving policy above his assessment of a level that neither stimulates nor restrains the economy.
ENERGY RISKS HAVE NOT YET BROADENED
Taylor said oil prices had ranged from roughly $70 to $110 a barrel since March, while refined-product margins and liquefied natural gas also presented risks for UK inflation. However, he said higher costs remained concentrated largely within energy rather than spreading widely through the economy. Underlying wage growth appeared consistent with inflation returning to target over the medium term, he added.
Taylor said policy can look through short-lived relative-price shocks but cannot look through the emergence of more persistent inflationary pressure. Taylor said the Bank was monitoring expectations, wage settlements, pricing behaviour, margins, demand and labour-market slack. His assessment placed the burden of proof for further tightening on evidence that those second-round effects were gaining traction.
COMMUNICATION COMPLICATES A SINGLE INCREASE
Taylor also questioned whether the Bank could deliver one isolated increase without markets interpreting it as the start of a series. He pointed to the Bank’s March hold, which markets had read as a prelude to several increases, as an example of how communication could misfire. His stance contrasted with that of the three MPC members who voted in September for a quarter-point increase, arguing that acting now could reduce the need for more tightening later.
Taylor said the Bank’s agents’ survey of firms’ 2027 wage intentions, due in January, would be a very important data point, and that he would also look at preliminary results available at the December meeting. He said that if pressure builds and second-round effects begin to gain traction, the policy assessment would have to change. If demand weakens and underlying pressures continue to moderate, he said policy would eventually need to move in the opposite direction once energy risks abate.