Alan Taylor, a policymaker at the Bank of England (BoE), called for swift action on interest rate cuts, advocating for a pre-emptive reduction to protect against potential economic risks. Speaking on Wednesday, Taylor emphasized that the UK is “in the last half mile on inflation,” and it is crucial to take steps now to mitigate the economic fallout of high rates.
Taylor explained, “It makes sense to cut rates pre-emptively to provide some insurance against a shift in the balance of risks, especially since our policy rate remains significantly above neutral levels and continues to be restrictive.”
He further noted that while inflation is nearing its target, the UK economy is showing signs of weakening. “It’s time to move interest rates back toward normal levels to ensure a smooth economic landing,” he added, revealing that this reasoning had influenced his decision to vote for an interest rate cut in December.
Taylor also expressed concern over the potential for a near-term cash flow squeeze facing UK businesses and households, urging policymakers to monitor this risk closely. “These challenges pose significant headwinds for the UK economic outlook, alongside broader global economic uncertainties,” he said.
The market reaction to the comments was muted, with the GBP/USD pair edging 0.03% lower to 1.2239 at the time of writing.
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