LONDON, July 2 (Reuters) – Bank of England policymaker Alan Taylor expressed concerns that a soft landing for the UK economy is now under threat, suggesting that recent economic indicators point to a need for five interest rate reductions in 2025 rather than four.
“Previously, I had anticipated a soft landing for the UK economy, with some potential inflationary pressures in 2025,” Taylor remarked during a speech at a European Central Bank summit in Sintra, Portugal.
“Now, I perceive that this soft landing is at risk, with an increased likelihood of a downturn in 2026 that could derail our course as demand weakness and trade disruptions intensify.”
The term “soft landing” refers to a scenario where employment increases and economic growth persists following a period of rising interest rates.
Since joining the Monetary Policy Committee in September, Taylor has voted for interest rate reductions in five out of seven meetings. In May, he supported a significant 0.5 percentage-point cut, followed by a 0.25 percentage-point reduction in June.
He stated to Bloomberg TV on Wednesday that he does not believe larger interest rate cuts are necessarily required. However, he noted that the limitation of only eight Monetary Policy Committee meetings per year presents an “integer problem” for policymakers aiming for a quicker pace of easing.
Taylor, who has drawn attention from economists since joining the MPC due to his clear communication regarding his expectations for future interest rates, emphasized in his speech that the MPC would benefit from finding a method to convey its views on future rates.
“After some shocks and noise clouded my view of the economy and global developments in the first quarter, my assessment of the deteriorating outlook indicated to me that we needed to pursue a lower rate path, necessitating five cuts in 2025 instead of the market-implied quarterly pace of four,” Taylor explained.
Charts included in Taylor’s speech illustrated that interest rates could potentially drop to approximately 2.25% in the second half of next year if his downside economic scenario materializes.
Last month, the BoE maintained interest rates at 4.25%, and investors are anticipating the central bank to reduce borrowing costs in two additional quarter-point adjustments to reach 3.75% by year-end.
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BoE’s Taylor warns soft landing for UK economy at risk, sees more rate cuts
LONDON, July 2 (Reuters) – Bank of England policymaker Alan Taylor said on Wednesday that a soft landing for Britain ‘s economy is now at risk and that economic data had recently argued for five interest rate cuts in 2025 rather than four.
“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 in a speech at a European Central Bank summit in Sintra, Portugal.
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“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.”
Economists use the term “soft landing” for a situation where employment rises and economic growth continues after a cycle of rising interest rates.
Taylor has voted to cut interest rates in five out of seven Monetary Policy Committee meetings since he joined in September. In May, he backed an outsized 0.5 percentage-point cut, followed by a 0.25 percentage-point cut in June.
He told Bloomberg TV on Wednesday that he did not believe bigger interest rate cuts were necessarily needed.
However, having only eight Monetary Policy Committee meetings per year posed an “integer problem” for policymakers seeking a faster pace of easing, he told Bloomberg TV.
Taylor, who has caught the eye of economists since joining the MPC because of his clarity about his own expectations for the path of interest rates, said in his speech the MPC would be “well-served” by finding a vehicle for communicating its beliefs on future rates.
“After some shocks and noise clouded my view of the economy and global developments in the first quarter, 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,” Taylor said.
Charts published in Taylor ‘s speech showed interest rates could fall to around 2.25% in the second half of next year if his downside scenario for the economy comes to fruition.
The BoE held interest rates at 4.25% last month, and investors are betting on the central bank to reduce borrowing costs in two further quarter-point moves to 3.75% by the end of the year.