Bank of England (BoE) policymaker Alan Taylor indicated on Wednesday that interest rates are expected to fall further as inflation is projected to align with the central bank’s 2% target by mid-2026. Taylor, speaking ahead of a lecture at the National University of Singapore, said the outlook for inflation has improved compared to earlier projections, suggesting monetary policy could normalize sooner than previously expected.

Inflation Set to Reach Target Sooner Than Expected

Taylor stated, “We can now see inflation at target in mid-2026, rather than having to wait until 2027 as in our previous projection.”

He highlighted that the easing inflationary pressures are supported by cooling wage growth, allowing the BoE to pursue a downward path for interest rates. Taylor added, “Interest rates should continue on a downward path, that is if my outlook continues to match up with the data, as it has done over the past year.”

This statement comes after the Monetary Policy Committee (MPC) approved a quarter-point cut in the benchmark interest rate to 3.75% from 4% in December 2025, with Taylor forming part of the five-member majority favoring the reduction. The remaining four MPC members had preferred to maintain current rates.

Investors Anticipate Further BoE Rate Cuts

BoE Governor Andrew Bailey recently projected that inflation, which stood at 3.2% in the latest reading, could drop to around 2% by April or May 2026. Market expectations now reflect the possibility of two additional quarter-point rate cuts by the BoE during 2026, reflecting the central bank’s commitment to returning inflation to target.

Global Trade Recovery to Support Inflation Control

In his speech, Taylor also addressed the impact of global trade on inflation. He noted that international trade shocks, including tariffs imposed by former U.S. President Donald Trump, have contributed to inflationary pressures over recent years. However, Taylor expects a gradual recovery in trade, which would act as a positive supply shock, helping to moderate price pressures in the UK.

“Smoother international trade is, at the end of the day, a positive supply shock—for those countries who choose to participate, at least,” he said, highlighting the importance of global economic stability in supporting domestic inflation targets.

Implications for UK Borrowers and Investors

Taylor’s comments signal a continued easing cycle for UK interest rates, which could provide relief to mortgage holders and businesses reliant on borrowing, while influencing bond yields, investment decisions, and currency markets. Lower rates may also bolster private consumption and housing demand, although analysts caution that other factors like government fiscal policy and global economic conditions will remain influential.