BoE's Taylor expects inflation to fall further this year
By Josh White
Date: Wednesday 14 Jan 2026
(Sharecast News) - A senior Bank of England policymaker reinforced expectations that UK interest rates will fall further on Wednesday, as inflation pressures ease more quickly than previously forecast, helped by cheaper imports, softer domestic costs and cooling wage growth.
Alan Taylor, an external member of the Monetary Policy Committee at the Bank of England, said in a speech at the National University of Singapore that inflation was now likely to return sustainably to the 2% target by mid-2026, earlier than the Bank's prior projection of 2027.
With headline inflation currently at 3.2%, Taylor said the outlook justified a continued easing in monetary policy, adding that borrowing costs should move towards their neutral level "sooner rather than later" if the data continues to align with his expectations.
Taylor was among five MPC members who voted in December to cut Bank Rate to 3.75% from 4%, while four policymakers preferred to leave rates unchanged.
He noted that domestic price pressures were easing as energy prices stabilised, food inflation fell and temporary tax and administered price increases dropped out from April, while recent budget measures were expected to lower inflation by around 0.5 percentage points.
A key additional factor, Taylor argued, was the impact of global trade diversion triggered by US tariffs.
He said Chinese exporters, facing punitive duties imposed by US president Donald Trump, were redirecting goods to other markets, including the UK and the European Union, often at lower prices.
The influx of cheaper imports, particularly from China, was acting as a disinflationary force and could push UK inflation below the Bank's central projections.
Taylor described the Bank's estimate that trade diversion would shave around 0.2 percentage points off inflation over the next two years as "quite conservative".
Recent Chinese trade data underscored the trend, with exports to the UK and EU rising sharply last year even as shipments to the US fell, suggesting global trade volumes were being redirected rather than collapsing.
Taylor said that reduced the risk of a sharp slowdown in world trade and differentiated the current episode of protectionism from the more damaging trade wars of the 1930s.
Financial markets broadly shared the view that further easing lay ahead, with investors pricing in at least one additional quarter-point rate cut this year, though expectations varied on the pace.
Much depended on the labour market, where Taylor acknowledged signs of softening, including higher unemployment than the Bank had forecast a year ago.
Reporting by Josh White for Sharecast.com.
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