LONDON, Dec 8 (Reuters) – British inflation is likely to return to its 2% target “in the near term” as wage growth and inflation in the services sector look set to slow further, Bank of England policymaker Alan Taylor said on Monday.
“We’ve got our foot on the brake a little bit still, but I see us achieving the inflation target, as we should, in the near term,” Taylor said at an event hosted by management consultants McKinsey.
“Our forecast path shows that coming along next year as both wage inflation and services inflation are continuing to come down in recent prints,” he added.
The BoE’s forecasts last month showed consumer price inflation, which was 3.6% in October, falling to 2.5% in the final quarter of next year and returning to target in 2027.
Taylor has regularly voted for the BoE to cut rates faster, including at November’s Monetary Policy Committee meeting where he was part of a 5-4 minority who voted for a quarter-point rate cut to 3.75%.
In minutes explaining that decision, he said he expected inflation to be weaker than forecast and that it could fall below target. He also pointed to upward revisions to the BoE’s forecasts of how high unemployment would rise.
Financial markets on Monday saw a roughly 85% chance that the BoE will cut interest rates by a quarter of a percentage point on December 18 but only priced in one further rate cut next year to 3.5%.
Taylor said in July that he believed the neutral level of BoE interest rates – where they neither push up nor pull down on inflation – was around 2.75%, lower than most MPC members think.
(Reporting by David MillikenEditing by Tomasz Janowski)
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