The Bank of England may cut interest rates five or six times this year due to fears of a recession. Alan Taylor, an external member of the Bank’s Monetary Policy Committee (MPC), which sets the base rate, suggested that a series of radical cuts could be necessary to prevent a severe downturn in the economy.
City experts predict the first rate cut could occur in February, with an additional two to four cuts expected before Christmas. However, in a speech, Professor Taylor highlighted the growing risk that the weakening economy would require a “more accelerated pace of rate cuts”, potentially leading to a fall of 1.25 or 1.5 percentage points in the BoE’s benchmark rate over the next 12 months.
This would reduce it from 4.75 percent to as low as 3.25 percent. Such a reduction would benefit the 700,000 homebuyers planning to remortgage this year and first-time buyers trying to enter the property market.
Professor Taylor stated: “The most recent data and forward-looking activity indicators present an increasingly gloomy outlook for 2025. We are in the last half-mile on inflation, but with the economy weakening, it’s time to get interest rates back toward normal to sustain a soft landing.”
According to one of its own experts, the Bank of England may cut interest rates five or six times this year due to fears of a recession
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Professor Taylor’s pessimistic evaluation was made prior to today’s news that GDP growth in November was below expectations at just 0.1 percent. Looking ahead, numerous business organisations have warned that changes in the Budget, increasing the living wage and raising N.
Professor Taylor has highlighted that concerns which were previously centred around rising inflation over the past 12 months have now shifted towards fears of a recession. He cautioned that if the situation deteriorates, it might necessitate swifter and more significant cuts in interest rates than the Monetary Policy Committee (MPC) currently anticipates.
He urged his fellow policymakers to “watch closely for signs of ebbing confidence”. Taylor, who became part of the MPC last year, remarked that while economic expansions are typically a “gradual climb up the stairs; but recessions can take hold quickly, sentiment can chill and the descent is more like taking the elevator shaft.”
He pointed out potential triggers for this negative turn of events, including new trade wars, but stressed that the most pressing domestic issue is a new cash flow squeeze already impacting businesses and households on various fronts.
He further warned: “If some sudden essential costs rise, like taxes or debt service, then something else has to give.” Taylor also noted that “GDP growth appears to have ground to a halt in the second half of 2024, and with . . . business expectations veering to the pessimistic, in my view the risks are now more skewed to the downside.”
In line with his concerns, Taylor joined external MPC member Swati Dhingra and BoE deputy governor Dave Ramsden in voting for an immediate quarter-point rate cut. At the most recent meeting, the majority of the nine-member committee decided to maintain interest rates at 4.75 per cent. Governor of the Bank of England, Andrew Bailey, stated that “a gradual approach to future interest rate cuts remains right”.