Bank of England should cut rates pre-emptively, says committee member

The Bank of England should move quickly to cut interest rates “pre-emptively”, according to rate-setter Alan Taylor.

Mr Taylor, the most recently appointed member of the Bank’s monetary policy committee (MPC) said the UK is “in the last half mile on inflation”.

It came after the Office for National Statistics said earlier on Wednesday that UK consumer prices index (CPI) inflation slowed down last month.

Official data reported lower-than-expected inflation of 2.5% in December, dipping back from a 2.6% reading the previous month.

However, it remains above the 2% target rate set by the Bank of England and UK government.

Bank of England rate-setters started cutting interest rates last year after inflation temporarily dipped below the target rate but voted to hold rates at 4.75% at the most recent meeting in December.

Mr Taylor was among three of the nine-strong committee who voted for a 0.25 percentage point cut at the meeting.

On Wednesday, he said in a speech at the University of Leeds that interest rates should be cut further to ensure a “soft landing” for the UK economy.

He said: “On multiple fronts, UK businesses and households could face a near-term cashflow squeeze, and we need to keep a careful eye on this important potential downside trigger.

“I fully appreciate these challenges for businesses and households and the headwinds they pose for the UK economic outlook, together with all the other emerging downside economic risks in the UK and around the world.

“Right now, I think it makes sense to cut rates pre-emptively to take out a little insurance against this change in the balance of risks, given that our policy rate is still far above neutral and would still remain very restrictive.

“We are in the last half mile on inflation, but with the economy weakening, it’s time to get interest rates back towards normal to sustain a soft landing.”