BoE's Alan Taylor sees no compelling case for rate rises over the energy shock
Victoria Shinder2 min readAlan Taylor, an external member of the Bank of England's Monetary Policy Committee, said on 29 September that the case for further rate increases is not compelling to him unless energy prices stay high for an extended period and show clearer signs of feeding into broader inflation. He was giving the 2026 Dow Lecture at the National Institute of Economic and Social Research.
His lecture separated three ways an energy shock reaches prices: direct effects on household energy bills and fuel, indirect effects as businesses pass on higher costs, and second-round effects, which he defined narrowly as the behaviour, such as wage demands and price setting, that can make a temporary rise in inflation persist. Only the last, he argued, should drive monetary policy, and the task is to read a set of imperfect signposts rather than a single indicator.
On the evidence so far, he said, higher energy costs are still largely concentrated within the energy complex. Inflation in many energy-intensive categories has not accelerated as expected, food inflation has fallen markedly and unexpectedly, though it could rebound, and survey and producer-price indicators point to only modest pass-through. Underlying wage growth looks broadly consistent with inflation returning to target, with little sign of a wage-price spiral. He contrasted this with 2022: the labour market is looser, excess demand has turned into excess supply, and financial conditions are restrictive.
On the stance, Taylor said that both Bank Rate and the market curve remain substantially restrictive relative to his estimate of the neutral nominal rate, 2.75% to 3%. Beyond two years, he noted, market rates are tighter than they were after the final hike of the last cycle in August 2023. By holding Bank Rate while financial conditions tightened, policy has become materially more restrictive than before the conflict began.
He acknowledged that Brent has ranged from about $70 to around $110 since March, and that his central scenario is continued oscillation followed by modest de-escalation in the autumn.
Why it matters
Taylor is setting out the dovish side of a committee debate that he says is about how hard to lean against inflation risk. With the Fed and the ECB already hiking, his speech marks the Bank of England as the major central bank most reluctant to follow.