Alan Taylor told the National Institute of Economic and Social Research on Tuesday that the case for raising rates is "not compelling," pointing to signs that second-round inflation effects are "scant at present." He noted he would reassess if those knock-on pressures start to show up.
Taylor, one of the BOE's more dovish voices, said prices in energy‑intensive sectors have not sped up, food inflation has eased, and the labor market looks subdued with little sign of a wage‑price spiral. "Taken together, these developments suggest that the economy is proving less susceptible, at least so far, to a repeat of the inflation dynamics seen in 2022," he said.
Taylor said there remains a "nontrivial risk" that second‑round effects emerge. But in his view, the "burden of proof for additional tightening should rest on evidence that second-round effects are actually gaining traction, rather than on the existence of the energy shock alone." He added that, for him, raising rates is "not compelling to me unless energy prices remain high for an extended period and also generate clearer signals of a transmission into broader inflation persistence."
He described the right policy posture as "vigilant but disciplined." If the US‑Iran war fades and the economy tracks expectations with weaker demand and moderating domestic inflation pressure, he said policy would eventually need to move the other way once the energy risk eases to avoid keeping conditions tighter than necessary for too long.
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Several other BOE rate‑setters have sounded more open to a move higher if the US‑Iran conflict keeps energy costs elevated. Governor Andrew Bailey said last week it is "going to get harder" to keep policy on hold as high energy prices last longer, and three of his deputies have used similar language.
Earlier this month the Monetary Policy Committee voted 6 to 3 to hold Bank Rate at 3.75%. Since oil and gas prices have climbed again, traders are betting on four 25‑basis‑point increases by next summer. That shift has already tightened UK financial conditions; since the conflict erupted, mortgage rates have surged. Policymakers are watching to see if firms pass through higher costs and if workers push for bigger pay rises, even as Bailey has said they cannot sit back until firm evidence appears before acting.
On Thursday, in a separate panel appearance, rate‑setter Catherine Mann cautioned that central banks face a "credibility problem" with inflation still above the 2% target and cautioned those pressures could become embedded. That helps explain the split: some want to lean against possible second‑round effects, while Taylor is focused on waiting for clear signs before tightening further.
For your wallet, here is the bottom line: if energy prices stay high, more rate hikes remain on the table, and that can filter into mortgages and other borrowing. If the energy shock ebbs and domestic pressures cool, talk could swing toward cuts instead of hikes.
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