BoE Policymaker Sees Little Case for Rate Rise Yet

Bank of England policymaker Alan Taylor said the case for raising interest rates is “not compelling” unless energy prices stay high and push inflation more widely through the economy.

Taylor, a member of the Bank’s Monetary Policy Committee, spoke as expectations of a rate increase have grown. He said energy costs so far appear concentrated in the energy sector rather than spreading across the economy.

He said a rate rise should be based on evidence that second-round inflation effects are taking hold, not on the energy shock alone. Such effects can include workers seeking higher wages to keep up with prices, or businesses raising prices because they expect customers’ behaviour to change.

Taylor said the Bank must remain alert to economic developments. He argued that higher energy prices would need to persist for an extended period and show clearer signs of feeding into lasting, wider inflation.

His comments echoed Governor Andrew Bailey’s remarks on Monday. Bailey said the direct effects of the energy shock were clear, but its pass-through to the wider economy was subdued.

The shock, triggered by the US-Israel war with Iran, has contributed to higher petrol and diesel prices and an increase in the price cap on household energy bills.