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A Bank of England policymaker has warned that there is an “increasing” risk of the UK economy seeing a “more vigorous recession” due to higher borrowing costs.
Alan Taylor, nine-strong member of the central bank monetary policy committeeSaid there was a small but growing possibility that the UK would see negative growth and “recession dynamics would begin”.
It came as the Bank rate-setter warned that it was “increasingly likely” that the UK economy would fall into a “weak state for a sustained period” and inflation would fall below target levels.
He said he believed this could cause “undue damage” to economic activity in Britain.
In a speech at King’s College Cambridge, the rate-setter said he thought the chances of a “soft landing” were now diminishing after the recent surge in inflation.
It comes amid a slowdown in economic growth in the UK after strong activity in the first quarter before expected tariff disruption.
The Bank of England has been continuously reducing interest rates since last year to reduce inflation, with the central bank keeping rates at 4% at last month’s meeting.
But Mr Taylor is among economists who have expressed concern that interest rates remain too high and could hamper economic growth.
On Tuesday, he said he believed “we may have applied the brakes too heavily, such that inflation cannot easily return to target as the economy nears capacity”.
The bank is trying to bring inflation down from its latest rate of 3.8% to the target rate of 2% set by the central bank and the government.
The economist said it now looks “increasingly likely” that there is a “rough landing” scenario where inflation falls short of the 2% target.
He expressed concern that inflation “will fall below target at the end of 2026, and the economy will slide into a state of weakness for a sustained period, with output and employment falling below potential, causing undue harm to economic activity”.
Meanwhile, he said there are concerns that fiscal policy could contribute to a third scenario, which he described as a “hard landing.”
“A year ago this was a remote and low-probability event, but the risk is increasing,” Mr Taylor said.
“In this scenario, weak domestic demand could lead to a more intense recession, where recessionary dynamics are triggered which may be very difficult to control or even reverse.
“The economy is flirting with zero growth, and realizing negative readings could easily change the future path for the worse. The probability of this outcome is no longer trivial.”