15 October 2025: BoE’s Taylor sees a possible hard landing ahead

External Bank of England Monetary Policy Committee Member Professor Alan Taylor believes that the UK is headed for an economic hard landing and advocates a faster pace of interest rate cuts.

Speaking at King’s College, Cambridge, he said that the Bank kept rates too high for too long to combat rising inflation as the country emerged from the COVID-19 pandemic.

“By maintaining what I think is a too restrictive path of interest rates, we may have braked too hard, such that inflation cannot smoothly return to target with the economy close to potential,” he said.

Taylor said that a hard landing was a remote possibility twelve months ago, but it now looks a possibility. The risk is rising, he said. The risk of such an outcome is no longer trivial.

While other external MPC members, including Catherine Mann, have flagged the risk of cutting rates too quickly, Taylor has consistently voted for rate cuts since joining the MPC a year ago.

An influential think tank has urged Rachel Reeves to resist ‘simple’ tax rises, including National Insurance, and instead encourage a reform of council tax.

The Institute of Fiscal Studies says: “Increasing taxes on returns to capital, such as rental income, dividend income, interest income, self-employment profits or capital gains, is simply raising tax rates without reform would do more economic damage than is necessary”.

Instead, it suggests that what it calls “proper reform” of property taxes would reduce disincentive effects on investment and, therefore, the unnecessary drag they impose on growth.

It goes on to say: ”Property taxation is an area in desperate need of reform. Revenue-raising within the existing system is possible, for example, by increasing council tax across the board or for high-band properties. However, this extra revenue would initially accrue to local authorities, rather than the Exchequer.

“It would be much better to raise any additional revenue from a reformed system.”

“A good end goal would be a reformed council tax consisting of a new recurrent property tax that was proportional to up-to-date property values in place of the current council tax, which in England is still ludicrously based on property values as of 1991, and stamp duty land tax on housing, which discourages relocation and upsizing/downsizing, and drags on growth.”

The latest economic report from the IMF was a double-edged sword for the Chancellor. On the one hand, inflation is expected to be the highest in the G7 this year. In contrast, the economy is expected to be the second-fastest growing in the G7, even though there is unlikely to be much competition from European nations.

Wages are still outpacing inflation with salary increases in the three months to August, including bonuses, reaching 5%. This data tends to lean toward Catherine Mann’s cautionary words on inflation rather than Swati Dhingra's and, now, Alan Taylor's rather more gung-ho approach.

The pound fell to a low of 1.3313 in the wake of the IMF report but managed to claw back some of its losses to close at 1.3336.

Fed Chairman Jerome Powell believes that while inflation could remain sticky, there are significant risks to the downside for the economy currently, even if the Central Bank does not have access to the latest figures due to the continued shutdown of the Federal Government, signalling that the central bank is likely to cut its key interest rate twice more this year.

“Rising downside risks to employment have shifted our assessment of the balance of risks”, Powell told the National Association of Business Economics in Philadelphia. He emphasised that even as inflation remains elevated, the Fed’s focus has turned to protecting the labour market from further deterioration.

Scott Bessent, Donald Trump’s Treasury Secretary, has accused China of trying to harm the global economy after Beijing imposed sweeping export controls on rare earths and critical minerals, disrupting global supply chains.

Bessent told the Financial Times that China’s introduction of the controls, three weeks before US President Donald Trump is expected to meet his Chinese counterpart Xi Jinping in South Korea, reflected problems in its own economy.

“This is a sign of how weak their economy is, and they want to pull everybody else down with them,” Bessent said on Monday.

“Maybe there is some Leninist business model where hurting your customers is a good idea, but they are the largest supplier to the world,” he added.

“If they want to slow down the global economy, they will be hurt the most,” Bessent added. “They are in the middle of a recession/depression, and they are trying to export their way out of it. The problem is they’re exacerbating their standing in the world.”

The US Treasury secretary spoke to the FT days after China unveiled expansive restrictions on rare-earth and critical minerals supplies, prompting Trump to threaten an additional 100 per cent tariff on imports from China from November 1.

Federal Reserve Board Governor Christopher Waller is the top choice of economists to be the new Federal Reserve Chair. But Trump is sweet on Kevin Hassett, even though he has no recent experience at the Fed. Governor.

Trump believes that “promoting from within” may not allow him to influence decision-making in the way he wants.

Global markets are too comfortable with risks, including trade wars, geopolitical tensions and yawning government deficits, which, combined with already overpriced assets, increase the chance of a "disorderly" market correction, the International Monetary Fund said yesterday in its regular review of the global economy.

Underlining the IMF's warning, U.S. President Donald Trump's revived threats to hike tariffs on China on Friday stoked investor fears of a major asset price correction. The comments sparked a sell-off in U.S. stocks and sent bitcoin tumbling.

The dollar index benefited from safe-haven purchases, rising to a high of 99.47, before traders became concerned by the volume of sell orders pitched close to the 100 level and lowered their expectations, which saw the index retreat to close at 99.05.

The influential ZEW survey for October saw confidence in the German economy improve less than expected, weighed down by sluggish current economic performance and further delays in the long-awaited recovery in Europe's biggest economy, a monthly survey showed yesterday.

The ZEW economic institute said its economic sentiment index based on a survey of financial analysts rose to 39.3 points from 37.3 points in September, below the 41.0 points forecast by analysts in a Reuters poll.

Expectations drove the improvement in the economic sentiment. They improved markedly this month across export-oriented sectors such as metal production, pharmaceuticals, mechanical engineering, and electrical equipment manufacturing, ZEW said. The automotive sector was an outlier with a slight drop in its sentiment indicator.

The assessment of the current economic situation remained negative, however, with its measure falling to minus 80.0 points from minus 76.4 in the previous month.

Emmanuel Macron says the opposition has not ‘risen to the challenge’ after the reappointment of Sébastien Lecornu as PM.

The French President has accused rival political parties of fuelling instability, as he brushed aside opposition calls for him to resign amid France’s worst political crisis in decades.

“Many of those who have fuelled division and speculation have not risen to the moment,” Macron said of French opposition parties, as he arrived in Egypt on Monday to attend a summit on Gaza. He said rival political forces were solely responsible for this chaos after they “instigated the destabilisation” of the prime minister, Sébastien Lecornu.

Lecornu, a Macron ally, held his first meeting with France’s new government after he appointed a mix of stalwarts from Macron’s centrist grouping, as well as a few faces from the upper ranks of the civil service and civil society.

New arrivals included Jean-Pierre Farandou, a well-liked figure in the union movement, who headed the state-run railway, SNCF, and is now labour minister.

In its review of the global economy, the IMF has once again ranked Spain as the fastest-growing advanced economy.

This year, it has raised its GDP growth estimate by 0.4% from last spring's estimate, to 2.9%, even higher than the Spanish government's forecast of 2.7%.

And for next year, it estimates it will be 2%, two-tenths of a percentage point higher than the spring forecast.

This trend, which once again places Spain at the forefront of growth for the second consecutive year, contrasts with the eurozone's forecast of 1.2%, with Germany at 0.2% and France at 0.7%.

The IMF's economic forecasts report, released Tuesday to coincide with the organisation's annual meeting, estimates US growth of 1.2%.

The Euro bounced off support at 1.1540 yesterday and reached a high of 1.1615 despite the overall gloomy IMF report.

It eventually closed at 1.1606.

Have a great day!