BoE's Current Policy Deemed Restrictive

Alan Taylor, a prominent policymaker at the Bank of England (BoE), highlighted the significant distance remaining to achieve neutral interest rates during his recent address at the London School of Economics and Political Science. He described the BoE's current monetary policy as "quite restrictive," with potential to become even more so.

Risks of Below-Target Inflation and Economic Slack

Taylor expressed concerns that the restrictive monetary policy could drive inflation below the BoE's target, leading to "an unduly large degree of slack" in the economy. He anticipates the inflation spike in 2025 will diminish, noting the labor market is already showing signs of expanding slack.

UK Economy's Soft Landing at Risk

Regarding the UK's economic outlook, Taylor warned that achieving a soft landing is increasingly uncertain. He advocated for immediate measures to safeguard against weakening demand, citing macroeconomic history's lesson on the importance of early action.