Bank of England’s Taylor views case for rate hike as ’not compelling’

London, September 29 - Bank of England Monetary Policy Committee member Alan Taylor has stated that the argument for raising interest rates remains weak until higher energy prices lead to clearer evidence of inflation spreading throughout the broader economy. Taylor, who voted with a majority to maintain the bank rate at 3.75% earlier this month, believes that the recent spike in gas and oil prices could cause headline inflation to rise sharply during the winter.

However, he argues that this alone does not justify an interest rate increase and that evidence of second-round inflation effects is lacking. Food inflation has been slower than expected, while underlying pay growth has remained consistent with the target inflation rate. Taylor contends that further rate hikes are not compelling unless energy prices stay high for an extended period and also provide clearer signals of persistent inflation transmission.

He was part of the 6-3 majority that decided to keep the bank rate unchanged and seems further from voting for a rate increase than some of his colleagues. Taylor highlighted that the current inflation outlook differs from the situation in 2022, when Russia's invasion of Ukraine drove oil prices up, fueling a tight post-pandemic labor market and sending inflation to double digits.

Rising public expectations for inflation are not necessarily a reliable indicator of future inflation risks, he added.