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International trade

Interest Rates Should Be Cut Three More Times in 2025, Says Bank of England Policymaker

Strategic Insights

— 1 min read

As concerns about global trade woes and their impact on the UK's inflation outlook continue to grow, a Bank of England policymaker has called for interest rates to be cut three more times in 2025. Alan Taylor, an external member of the Monetary Policy Committee (MPC), made the statement at the European Central Bank Forum in Portugal, cautioning that the inflation outlook was at risk of being pushed "off track". Taylor's view is a departure from the majority of the MPC, which decided to keep rates on hold at 4.25% in June, despite Taylor's call for a quarter point cut. The Bank had reduced rates in May by a quarter point, from 4.75%, but Taylor had voted for a steeper half point cut.

Key Takeaways:

  • The Bank of England policymaker, Alan Taylor, believes interest rates should be cut three more times in 2025 due to the deteriorating economic outlook.
  • Taylor was out-voted by the MPC in June, with the majority deciding to keep rates on hold at 4.25%.
  • The policymaker warns that the inflation outlook is at risk of being pushed "off track" amid global trade woes and weakening demand.
  • Taylor's call for a lower rate path is driven by his expectation of five rate cuts in 2025, rather than the market-implied quarterly pace of four.
  • The inflationary impact of the hike in national insurance contributions and price hikes is expected to "fade out" in the new year.
  • The policymaker notes that energy prices remain a significant unknown, but they are not the only factor influencing the inflation outlook.
  • Taylor's views contrast with the majority of the MPC, which is more optimistic about the UK's economic prospects.

Statistics:

  • Interest rates are currently at 4.25%
  • The Bank of England reduced rates by a quarter point in May to 4.25% (from 4.75%)
  • Alan Taylor voted for a quarter point cut in June, but was out-voted by the MPC
  • The policymaker expects interest rates to be cut three more times in 2025
  • The market-implied quarterly pace of interest rate cuts is four times in 2025
  • The policymaker expects five rate cuts in 2025

Sources:

  • Holly Williams, "Bank of England policymaker suggests interest rates should be cut three more times in 2025", PA (no date)

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