Alan Taylor, member of the Bank of England's Monetary Policy Committee, has said the case for further rate increases is "not compelling", believing that "evidence for significant second-round effects remains scant at present" and that the current stance is "sufficiently restrictive".
During a speech this week, Taylor noted that market rates are "more restrictive than they were when we delivered the final hike of the previous cycle in August 2023", at the time when inflation stood at 6.8%.
"My assessment is that the current stance is more than sufficient to weigh on demand and inflation and provide the degree of restrictiveness needed to return inflation sustainably to target", he added.
While noting that the recent surge in gas and oil prices has "clearly increased near-term inflation risks and could push headline inflation considerably higher over the winter", he says the key policy question is whether those prices remain elevated for long enough to generate more persistent inflationary pressure.
Taylor believes that "higher energy costs still appear largely concentrated within the energy complex itself rather than spreading widely through the economy", adding that "evidence for significant second-round effects remains scant at present".
He argue that the economy is proving "less susceptible, at least so far, to a repeat of the inflation dynamics seen in 2022", believing the current stance on monetary policy is "sufficiently restrictive".
Concluding, Taylor said: "The case for further rate increases is not compelling to me unless energy prices remain high for an extended period and also generate clearer signals of a transmission into broader inflation persistence, as revealed by the signposts that we are actively monitoring.
"That does not remove the need to stay alert. However, it does suggest, to me, that the burden of proof for additional tightening should rest on evidence that second-round effects are actually gaining traction, rather than on the existence of the energy shock alone.
"We should not deny the shock, nor dismiss the risk that it could propagate. But neither should monetary policy react mechanically to movements in energy prices if those movements remain primarily relative-price shocks.
Earlier this month, the Monetary Policy Committee voted 6-3 to hold Bank Rate at 3.75%, the sixth consecutive hold. However, markets priced in a rise to 4% later this year and two further increases in 2027.
Despite this, mortgage professionals polled by Financial Reporter defied economists' consensus of a November interest rate increase, with the vote almost even between a hold and a rise.
Attendees at Mortgage Adviser Expo Manchester were asked whether they think the Bank of England's Monetary Policy Committee will vote to raise, hold, or cut interest rates at their next meeting on the 5th November.
55% think the MPC will raise interest rates, but 42.5% expect a further hold.
