A member of the Bank of England’s Monetary Policy Committee has indicated that three interest rate cuts could occur in 2026, citing easing inflation and a weakening labour market as key factors influencing the outlook.
Alan Taylor, an external member of the MPC, made the remarks during discussions with bankers and City analysts ahead of a Treasury hearing where Governor Andrew Bailey and committee members will face questions on the pace of future rate reductions.
Inflation normalisation
Speaking to City A.M., Taylor said the jobs market was “converging on a pessimistic outlook”, adding: “I have become more reassured that we are proceeding towards inflation normalisation at a reasonable pace. We might have two or three rate cuts to go before the theoretical neutral level.”
Taylor also suggested inflation could potentially fall below the Bank’s two per cent target. Official figures released last week showed CPI inflation easing to 3.0% in January from 3.4% in December, driven by lower petrol prices and cheaper food and airfares.
Services inflation remains a concern
Taylor identified services inflation as an area requiring close monitoring by policymakers due to its connection to wages and domestic demand. He also highlighted external risks, noting the US had moved into a “high tariff regime” and stating: “We should expect this shock to play out over many years.”
Taylor has consistently been among the more dovish voices on the MPC over the past 18 months, frequently supporting larger rate cuts than his colleagues. If his forecast proves accurate, the base rate could decline to 3.0% by year-end.
Market implications
The potential for three rate cuts would have significant implications for the property market, particularly for mortgage borrowers and buy-to-let investors. Lower borrowing costs typically support property prices and improve affordability, though the pace and timing of any cuts remain dependent on economic data.
