BoE’s Taylor Says Rate Still Far Above Neutral, Warns Inflation May Undershoot

Bank of England Monetary Policy Committee member Alan Taylor said the U.K. central bank is still "a long way" from returning its benchmark rate to a neutral setting, indicating that policy is likely to stay restrictive for some time. Speaking at the London School of Economics on 4 July, Taylor presented updated estimates of the economy’s real neutral rate (r*), showing it remains well above the current Bank Rate. Taylor cautioned that, with tight policy in place, there is now a “material risk” that U.K. inflation will undershoot the BoE’s 2% target. He added that the chances of engineering a soft landing for the economy have diminished as growth indicators weaken under the weight of higher borrowing costs. The remarks highlight a growing debate inside the BoE over how quickly officials can begin easing without reigniting price pressures. Investors currently expect the first rate cut later this year, but Taylor’s comments suggest the timing could slip if the Committee remains concerned about the neutral rate gap.