A member of the Bank of England’s interest rate-setting committee has warned that higher-than-expected inflation and growth figures should not distract policymakers from continuing to cut borrowing costs.
Alan Taylor, who was one of two monetary policy committee members to call for a bigger 0.5 percentage point cut last month, said that while he was not going to forecast his future votes, he felt that recent economic data was being led by one-off factors.
“I’m not going to pre-emptively announce my vote, but I think I indicated in my dissent that I thought we needed to be on a lower [monetary] policy path,” Taylor told the Financial Times in an interview.
The latest figures show UK inflation jumped by more than expected in April, to 3.5% from 2.6% in March, almost a percentage point higher than the Bank of England’s 2% target.
However, much of that rise reflected a jump in water bills, energy costs and council tax. “[Higher inflation] is not coming from demand and supply pressures; for the most part, it’s coming out of one-time tax and administered price changes,” Taylor said, adding that energy prices had otherwise been trending downwards.
“[The BoE] forecast path is saying there is going to be an inflation hump and then it’s going to go away,” he said
While the UK economy grew 0.7% in the first quarter, marking the fastest rise in a year, economists have said it was largely the result of stronger levels of business investment as companies rushed to beat Donald Trump’s tariffs. Taylor said he was still “pretty concerned” about the outlook.
Taylor was among two members of the nine-strong MPC who voted for a bigger 0.5% percentage point cut to interest rates earlier this month, which were ultimately cut by a quarter of a percentage point to 4.25%. Two members voted to hold at 4.5%.
His concerns about the outlook are due to “more risk piling up on the downside scenario because of global developments”, he said. Taylor said that includes ripple effects from the US president’s trade war.
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“A trade war is going to be negative for growth,” Taylor said, adding that the tariff regime “is going to be a drag on growth for both the frictional reason and the uncertainty reason”. While the Labour government has hailed three trade pacts struck with the EU, India and US in recent weeks, Taylor said the UK was “not getting back to where we were before”.
He said: “These other things are perhaps welcome in their effects in certain sectors, but I think we need to keep our eye on the big shocks. We got a massive change in trade policy; we have a lot of uncertainty: I would focus on that as the big story.”
