Inflation unexpectedly falls to ease pressure on Reeves
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The Bank of England must stand ready to cut interest rates up to six times this year to boost Britain’s flagging economy, according to one of its top officials. Alan Taylor, who joined the Bank’s Monetary Policy Committee (MPC) in September, warned that Rachel Reeves’s tax raid meant the economy faced an “increasingly gloomy” outlook.
It came as official figures showed inflation eased to 2.5pc in the year to December, from 2.6pc in November as price rises in the services sector eased more than expected. While the Bank has warned that the Chancellor’s £25bn national insurance raid and increases in the minimum wage from April are likely to keep prices and borrowing costs higher for longer, Mr Taylor said he was more concerned about growth.
The Columbia University professor voted for an immediate rate cut in December to 4.5pc from 4.75pc, warning that “pre-emptive” rate cuts were now needed in order to ward off the risk of a deeper downturn. The economy flatlined in the second half of 2024.
While Mr Taylor said that cutting interest rates four times this year would be “appropriate “ if inflation continues to come down gradually this year, he warned there was now a greater “risk of demand stalling”. Mr Taylor said: “We could then need a more accelerated pace of rate cuts, perhaps 125 or 150 basis points in the coming year. To me this pessimistic scenario has been becoming a more likely scenario given recent data.”.
