U.K. Economy Faces Rising Risk Of a 'Hard Landing,' Says BOE's Taylor — Update

By Paul Hannon

There is a small but growing possibility that the U.K. economy is heading for recession, thanks in part to overly high borrowing costs, a Bank of England rate-setter said Tuesday.

In a speech at Cambridge, Alan Taylor said the central bank's reluctance to lower its key interest rate quickly means the economy is now unlikely to nail a "soft landing" in which inflation returns to the 2% target without the economy contracting or unemployment jumping.

Instead, Taylor said it is most likely that the economy will suffer a "bumpy landing" in which inflation falls below 2% in late 2026 as the economy remains in "a weakened state" for a sustained period.

But the rate-setter said there is a growing risk of a "hard landing" that would involve "recession dynamics."

"The economy has been flirting with zero growth, and the realization of negative readings could easily change the future path for the worse," he said. "The probability of this outcome is now not trivial."

As a result of a hard landing, the BOE would be confronted with "an even more dramatic inflation undershoot" than in a bumpy landing.

"To end up here would be a mistake," he said.

Over recent months, Taylor has repeatedly voted to lower the key rate more rapidly than have most of his colleagues on the monetary policy committee. His comments suggest he will again vote to lower the key interest rate in November's meeting.

Taylor is a professor of economics at Columbia University, and one of four members of the MPC who do not work for the BOE full-time.

The U.K. economy grew rapidly in the first three months of the year, but slowed sharply in the second quarter.

Taylor also said there are "tentative" signs that Chinese businesses are lowering their prices in order to find new customers in Europe, having been frozen out of U.S. markets by high tariffs, a phenomenon known as trade diversion.

Taylor noted that prices of imported goods have been falling "for a few years now."

"I would expect this overall trend to continue and even to quicken as trade diversion picks up around the world, at least so long as the U.K. remains relatively open and takes few protectionist steps of its own," he said.

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

October 14, 2025 08:54 ET (12:54 GMT)