Bank of England’s Taylor: No need for interest rate hike
Bank of England official Alan Taylor has downplayed the need to raise interest rates in the face of the looming energy crisis, saying he saw no evidence that price rises from an initial jump in fuel costs were filtering into the wider economy. External Monetary Policy Committee member said the case for rate hikes was [...]
Bank of England's Alan Taylor has dismissed calls for an immediate increase in interest rates amidst a looming energy crisis. The official stated that there was insufficient evidence that rising fuel prices were affecting the overall economy. He argued that the case for rate hikes was "not compelling" due to the lack of second-round effects, where higher prices are embedded in the economy as companies raise prices and employees demand higher wages.
Taylor, who holds one of the most dovish voting records on the Bank of England's nine-member Monetary Policy Committee (MPC), urged a vigilant and disciplined response. He emphasized that while the shock should not be dismissed, monetary policy should not mechanically react to energy price movements if they remained primarily relative-price shocks.
The Bank of England official pointed to several factors suggesting that the economy might be less susceptible to a repeat of the 2022 dynamics. These included a weak labor market, falling food inflation, and the fact that prices in other energy-intensive industries had not risen significantly. Taylor concluded that the economy was proving less susceptible to the transmission of shocks seen in 2022 so far.
Contrasting his position, other MPC members have warned about the need for rate hikes unless there is a rapid de-escalation in the Middle East. Catherine Mann, another external rate-setter, expressed concern about central banks facing a "credibility problem" due to their failure to bring inflation back to the target of 2%. Governor Andrew Bailey and Deputy Governor Dave Ramsden also signaled a potential need for an interest rate hike at the bank's next decision in November.
So far, the Bank of England has held interest rates at 3.75% for six consecutive decisions, with MPC members voting six to three to keep the base rate unchanged. Taylor believed that the current stance was sufficient to weigh on demand and inflation and provide the necessary degree of restrictiveness to return inflation sustainably to target.
He added that the case for further rate increases was not compelling unless energy prices remained high for an extended period and generated clearer signals of transmission into broader inflation persistence.
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