Taylor Cools Rate Hike Expectations Amid Energy Price Uncertainty

Bank of England policymaker Alan Taylor has downplayed the need for raising interest rates, saying it's 'not compelling' unless energy prices stay higher for longer and have a bigger impact on the economy.

Taylor, a member of the Bank's Monetary Policy Committee (MPC), made his comments in a speech at the Dow Lecture at the National Institute of Economic and Social Research (Niesr). He pointed out that so far, higher energy costs appear to be largely concentrated within the energy complex itself rather than spreading widely through the economy.

Taylor emphasized the need for policymakers to stay 'alert' to developments in the economy, but argued that an interest rate hike should rest on evidence of second-round effects gaining traction, not just the existence of the energy shock alone.

He echoed comments made by Bank Governor Andrew Bailey, who said there was no question about seeing the direct effects of the energy shock, but that the pass-through to the wider economy is currently subdued. Taylor also noted that interest rates may need to come down in the future if pressures on inflation ease and energy risks abate.