To use the search feature, we need your consent to load Google Custom Search, which may use cookies or similar technologies. Please click 'Allow and Continue' below to enable search. See our privacy policy for more information.
Business | Business News
Sign up for our email featuring expert insight and funding opportunities for entrepreneurs and SMEs
I would like to be emailed about offers, event and updates from Evening Standard. Read our privacy notice.
There is a “rising” risk that the UK economy could see a “more forceful downturn” due to higher borrowing costs, a policymaker at the Bank of England has warned.
Alan Taylor, a member of the central bank’s nine-strong Monetary Policy Committee, said there was a small but growing chance that the UK will witness negative growth and “recession dynamics start to kick in”.
It came as the bank rate-setter cautioned that it is “increasingly likely” that the UK economy will fall into a “weakened state for a sustained period” with inflation sliding below target levels.
He said he believes this could lead to “undue damage” to economic activity in the UK.
In a speech at King’s College Cambridge, the rate-setter said he thinks the likelihood of a “soft landing” following the recent uptick in inflation is now receding.
It comes amid a slowdown in economic growth in the UK after strong activity in the first quarter ahead of expected tariff disruption.
The Bank of England has been steadily reducing interest rates over the past year as it seeks to reduce inflation, with the central bank holding rates at 4% in last month’s meeting.
But Mr Taylor is among economists to raise concerns that interest rates still remain too high and could hamper economic growth.
On Tuesday, he said he believes “we may have braked too hard, such that inflation cannot smoothly return to target with the economy close to potential”.
The Bank is seeking to bring inflation down from its latest rate of 3.8% to the target rate of 2% set by the central bank and the Government.
The economist said it is now “increasingly likely” that there is a “bumpy landing” scenario where inflation undershoots the 2% target.
He raised concerns that inflation “goes below target in late 2026, and the economy moves into a weakened state for a sustained period, with output and employment below potential, leading to undue damage to economic activity”.
Meanwhile, he added that there is a worry that fiscal policy could contribute to a third scenario, he describes as a “hard landing”.
UK inflation to rise to highest in G7, warns IMF as food costs surge
Wage growth slips back as jobless rate hits highest since 2021 – ONS
FTSE 100 Live: Jobless rate rises, easyJet leads index as builders rally
Discover The Broadley, Marylebone's newest luxury development
“This was a remote and low probability event a year ago, but the risk is rising,” Mr Taylor added.
“In this scenario, weak demand at home can lead to a more forceful downturn, where recession dynamics start to kick in that can be very difficult to contain or even reverse.
“The economy has been flirting with zero growth, and the realisation of negative readings could easily change the future path for the worse. The probability of this outcome is now not trivial.”
MORE ABOUT
1
Football
World Cup play-offs: How Nigeria can still qualify for 2026 tournament
How Nigeria can still qualify for 2026 World Cup
2
Football
Who Nigeria will face in World Cup play-offs as opponents revealed
Who Nigeria will face in World Cup play-offs as opponents revealed
3
Crime
PM’s groundsman jailed for attack on murder victim’s dad outside Old Bailey
PM’s groundsman jailed for Old Bailey attack on murder victim’s dad
4
Politics
Home Office reveals new visa rules including increased English requirements for migrants
New visa rules revealed including increased English requirements
5
London
Plans to demolish London shopping centre and build 1,700 homes set for approval
Plans to replace shopping centre with 1,700 homes set for green light