Taylor sees Bank Rate stance sufficient despite energy shock
Bank of England policymaker Alan Taylor stated that monetary policy is sufficiently restrictive to contain inflation without further rate increases, despite recent energy price volatility. Speaking at NIESR on September 29, 2026, he argued that second-round effects remain limited.
Limits to second-round effects
Taylor highlighted that while Brent crude has traded between $70 and $110 since March, the transmission of energy shocks is strictly state-dependent.
Unlike in 2022, the UK economy now features a looser labour market and excess supply, limiting the scope for workers and firms to embed price shocks into wages and margins.
BOE staff estimates indicate that more than three quarters of wage growth responses to energy shocks depend on labour market slack.
Furthermore, pass-through from firm inflation expectations to prices remains constrained at 20 to 30 percent.
With nominal R* estimated at 2.75 to 3.00 percent, Taylor argued that current monetary conditions are already restrictive enough.
The odd economy out
Cross-country comparisons underline the UK's specific situation.
Projections show the UK faces an inflation gap of 0.7 percent alongside a negative output gap of -0.6 percent, contrasting with positive output gaps across most developed markets.
Taylor noted: “The burden of proof for additional tightening should rest on evidence that second-round effects are actually gaining traction.”
If domestic pressures moderate as expected, policy will eventually ease once energy risks subside.
A textbook case for patience
Taylor mounts a rigorous defense against knee-jerk tightening amid fresh energy volatility.
By demonstrating that economic slack blocks wage-price spirals, he frames the policy stance as sufficiently restrictive.
For investors, this firmly raises the threshold for any further Bank Rate increases.
Source: Searching for signposts − speech by Alan Taylor
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