By Paul Hannon
Investors' expectations of Bank of England policy changes have moved into closer alignment with the likely path of interest rates, a member of the Monetary Policy Committee said Thursday.
In leaving its key interest rate unchanged last month, the BOE said it was prepared to raise borrowing costs to tame a pickup in inflation driven by the surging energy costs that accompanied the conflict in the Middle East.
Investors responded by shifting their expectations for future rate moves to as many as four increases this year. BOE Governor Andrew Bailey later said that markets were "getting ahead of themselves."
More recently, investors have shifted again to expect one or two rate rises.
"Markets might have gotten ahead of themselves and maybe things are calming down," rate-setter Alan Taylor said on the sidelines of the International Monetary Fund's Spring Meetings.
The BOE is due to announce its next policy decision on April 30.
Speaking at the same event, European Central Bank Chief Economist Philip Lane said the timing of a potential rate move was "a detail," and that policymakers must be prepared to make mistakes when uncertainty about the economic outlook is high.
"If you make monetary policy under uncertainty, you have to be open to revising your rate decision," he said. "A hike may turn out to be a mistake. Holding may turn out to be a mistake. We can always update and revise every six weeks."
Taylor said he was doubtful that rate rises would be needed to counter the pickup in inflation, given the weakness of the economy and the softness of the jobs market before the conflict began.
What matters most for officials now is how workers and employers respond to the jump in energy prices. If workers seek and get bigger pay rises, prices of labor-intensive services will likely rise and the pickup in inflation will last longer.
"I'm not quite seeing the conditions for that," Taylor said. "I'm looking for something that would change my mind."
The U.K. rate setter estimates that the interest rate at which the BOE is neither stimulating nor restraining the economy is 3%, while the current rate is 3.75%. In addition, bond market yields have risen since the start of the conflict, pushing borrowing costs higher for the government, households and businesses.
"I think we've already got quite a lot of restrictiveness," Taylor said.
Taylor's comments suggest he is unlikely to vote for a rate change at the next meeting. During his time on the MPC, he has preferred a lower interest rate than many of his colleagues, and said he would have voted for a rate cut last month had the war in Iran not begun.
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
April 16, 2026 12:52 ET (16:52 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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