BoE’s Alan Taylor warns of rising danger of ‘bumpy landing’ for UK economy
Bank of England policymaker Alan Taylor has warned that the UK economy is at a growing risk of “a bumpy landing”.
Speaking at King’s College, Cambridge (Taylor’s alma mater) today, he sticks to his reputation as a dovish member of the Bank’s monetary policy committee. He predicts that wage settlements will be pushed down in “an economy with rising unemployment and weak demand”, meaning little risk of an upward spiral in wage-led domestic inflation.
Taylor argues that there are now three plausible scenarios in 2026, of varying pain for consumers and businesses:
The first scenario is the “soft landing”, which Taylor fears is receding in terms of probability.
He says:
By maintaining what I think is a too restrictive path of interest rates, we may have braked too hard, such that inflation cannot smoothly return to target with the economy close to potential, as my votes have indicated.
The second scenario is the “bumpy landing”, which Taylor thinks is increasingly likely.
This, he says, is:
… a downside scenario, where inflation undershoots, and goes below target in late 2026, and the economy moves into a weakened state for a sustained period, with output and employment below potential, leading to undue damage to economic activity.
The third scenario is the “hard landing”, which Taylor calls “a deeper worry”. He says:
This was a remote and low probability event a year ago, but the risk is rising. In this scenario, weak demand at home can lead to a more forceful downturn, where recession dynamics start to kick in that can be very difficult to contain or even reverse. The economy has been flirting with zero growth, and the realisation of negative readings could easily change the future path for the worse. The probability of this outcome is now not trivial. This would be the ‘downside to the downside’ scenario and it would lead to an even more dramatic inflation undershoot than the second scenario. To end up here would be a mistake.
Taylor also outlines in his speech how the UK could find itself on the end of a “double diversion phenomenon” as Donald Trump’s tariff war diverts trade flows
He explains how this could lead to more goods from China arriving in the UK, unless London takes protectionist trade measures, making the “bumpy landing” more likely, saying:
First, the US raises barriers on imports from low-cost producers, who then redirect their goods to third countries, like the EU, who in turn respond with further barriers to those low-cost producers, who then move on again to direct their large flows of exports to an ever-smaller target group of open export markets. Naturally, the UK comes to mind as one of those potential targets.
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IMF: Bank of England should be “very cautious” about easing interest rates
The IMF then fends several questions about the UK economy, including today’s forecast that it will have the higher inflation in the G7.
Q: Does the UK have an inflation problem?
Pierre-Olivier Gourinchas points out that the UK is also forecast to enjoy above average growth in the G7, “so it is doing something right”, he tells today’s press conference about its World Economic Outlook.
On inflation, the Fund believes that many of the drivers of inflation are temporary factors, including regulated prices, while falls in energy prices have dropped out of the window for inflation calculations.
But… the IMF does see an upside risk on UK inflation, he adds. He points to increase in labour costs, and increase in inflation expectations – which have been nudging up at the three and five-year level as well as at the shorter, one-year end.
As such, the Bank of England should be “very cautious in its easing trajectory”, he adds – meaning policymakers should not rush to cut interest rates.
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Gourinchas says global factors are in play too – we are in an environment where bond investors are becoming more prudent about buying government debt.
He adds that the UK is still a solid economy, and the Fund is “not seeing risks there at all.”
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Is IMF saying tech bubble is about to burst?
Q: Are you saying that the tech bubble is about to burst?
No-one can know for sure, IMF chief economist Pierre-Olivier Gourinchas replies.
He then cites the very robust investment in the tech sector sector, among companies who are developing AI systems and also those who are adopting it. This is sustaining activity in the US right now, he explains.
Gourinchas then points to the boom on Wall Street, saying that “the valuations in stock markets now reflect the prospects of profits in future”.
Those valuations are “quite elevated”, he explains, which is feeding into strong consumpion as people see their portfolio doing well.
So while the Fund can’t say whether this tech boom is going to correct, part of its job is to watch out for potential risks, and it is one of the risks.
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Updated at 09.33 EDT
Q: What impact will the weaker dollar have on emerging markets?
IMF chief economist Pierre-Olivier Gourinchas says the US dollar has been weakening since January. That helps financial conditions in many emerging markets (as they often borrow in dollars) and also helps on the inflation front, as it means import prices don’t rise as much.
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Asked about Egypt’s economic prospects, the IMF’s deputy chief economist, Petya Koeva-Brooks, says the Fund expects stabilization in its Suez canal and mining activities.
Inflation is expected to decline further, she adds.
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The IMF are now taking questions about their World Economic Outlook:
Q: How much economic impact could the latest US-China trade tensions have?
Pierre-Olivier Gourinchas, the Fund’s chief economist, says the latest announcements show that trade uncertainty is still with us.
He points out that the situation is very fluid, and isn’t factored into the IMF’s baseline scenarios.
This sort of downside risk illustrates the potential that the global economy could take a turn for the worst if trade tensions become more elevated, Gourinchas says.
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IMF: Four reasons to worry, as tariff shock dims growth prospects
The IMF are now presenting their latest World Economic Outlook at a press conference in Washington DC now.
The Fund’s chief economist, Pierre-Olivier Gourinchas, is explaining that the econonomic outlook is fragile and very sensitive to developments in trade outlook.
He points out that global trade developments continue to shape the economic outlook, warning that the tariff shock is dimming “already weak growth prospects”.
Gourinchas then cites four concerns
1) The technology boom, which he says has echoes of the dot-com boom of the late 1990s. There is a risk, he says, that stronger investment and consumption could lead to tighter monetary policy.
There is also a risk that markets sharply reprice tech investments.
2) Concerns about China’s growth model. Gourinchas points to weakness in its property sector, adding that it is hard to see how exports can continue to drive growth in the current trade climate.
3) There has been insufficient progress rebuilding fiscal space in many countries.
4) There are rising pressures on central banks, who are facing calls to ease monetary policy at the expense of price stability. That “always backfires”, he says, as eroded trust leads to higher inflation expectations.
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Updated at 09.14 EDT
World economy resilient amid Trump tariffs but outlook looks ‘dim’, says IMF
Heather Stewart
The global economy has shown “unexpected resilience” in the face of Donald Trump’s tariffs, but the full impact is yet to be felt, and outlook for growth remains “dim”, the International Monetary Fund (IMF) has warned.
As policymakers gather in Washington for its annual meetings, the IMF has upgraded its forecast for global GDP growth this year to 3.2%, from 3% at its last update in July. Next year’s global forecast is unchanged, at 3.1%.
The forecast for economic growth in the UK has also been modestly increased, from 1.2% to 1.3% this year – though slightly downgraded next year, also to 1.3%.
“To date, more protectionist trade measures have had a limited impact on economic activity and prices,” the IMF said in its latest World Economic Outlook (WEO).
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IMF also lifts UK growth forecasts
The IMF has also bumped up its forecast for UK growth this year.
It now predicts UK GDP will grow by 1.3% in 2025, up from 1.1% forecast in April.
However, growth for 2026 has been dialled back to 1.3%, from 1.4% forecast six months ago, but the overall result of the two revisions is positive, overall, for the UK economy.
The Fund says:
In the United Kingdom, growth in 2025 and 2026 is expected to be 1.3 percent, revised, on a cumulative basis, slightly upward relative to April.
While this reflects strong activity in the first half of 2025 and an improvement in the external environment, including through the UK-US trade deal announced in May, the projected growth in 2025–26 is still lower by a cumulative 0.4 percentage point compared with the forecast in October 2024.
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UK inflation to rise to highest in G7, warns IMF
Newsflash: UK inflation is set to surge to the highest in the G7 in 2025 and 2026, according to the latest forecasts from the International Monetary Fund.
The IMF makes the forecast in its latest outlook report, just released. Its economists now predict UK inflation will average 3.4% in 2025, up from a forecast of 3.1% back in April.
UK inflation is then expected to average 2.5% in 2026, up from 2.2% forecast in April.
In contrast, inflation in the euro area is forecast to average 2.1% this year, and drop to 1.9% next year.
The IMF (which doesn’t seem to share Alan Taylor’s concern that inflation could undershoot the Bank’s 2% target in a ‘bumpy landing’), says:
In the United Kingdom, headline inflation, which started picking up in 2024, is expected to continue rising in 2025 partly because of changes in regulated prices. This is projected to be temporary, with a loosening labor market and moderating wage growth eventually helping inflation return to target at the end of 2026.
The Fund also warns that trade conflicts are pushing up inflation, pointing to “increasing signs that the adverse effects of protectionist measures are starting to show”.
The economic outlook explains:
Patterns in net exports and inventories driven by front-loading behavior have largely reversed. Core inflation has risen in the United States, and unemployment has edged up. Inflation is stabilizing above central bank targets in several other countries, and inflation expectations are still fragile, worsening the trade-offs for monetary policymakers as uncertainty and tariffs start weighing on activity.
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BoE’s Alan Taylor warns of rising danger of ‘bumpy landing’ for UK economy
Bank of England policymaker Alan Taylor has warned that the UK economy is at a growing risk of “a bumpy landing”.
Speaking at King’s College, Cambridge (Taylor’s alma mater) today, he sticks to his reputation as a dovish member of the Bank’s monetary policy committee. He predicts that wage settlements will be pushed down in “an economy with rising unemployment and weak demand”, meaning little risk of an upward spiral in wage-led domestic inflation.
Taylor argues that there are now three plausible scenarios in 2026, of varying pain for consumers and businesses:
The first scenario is the “soft landing”, which Taylor fears is receding in terms of probability.
He says:
By maintaining what I think is a too restrictive path of interest rates, we may have braked too hard, such that inflation cannot smoothly return to target with the economy close to potential, as my votes have indicated.
The second scenario is the “bumpy landing”, which Taylor thinks is increasingly likely.
This, he says, is:
… a downside scenario, where inflation undershoots, and goes below target in late 2026, and the economy moves into a weakened state for a sustained period, with output and employment below potential, leading to undue damage to economic activity.
The third scenario is the “hard landing”, which Taylor calls “a deeper worry”. He says:
This was a remote and low probability event a year ago, but the risk is rising. In this scenario, weak demand at home can lead to a more forceful downturn, where recession dynamics start to kick in that can be very difficult to contain or even reverse. The economy has been flirting with zero growth, and the realisation of negative readings could easily change the future path for the worse. The probability of this outcome is now not trivial. This would be the ‘downside to the downside’ scenario and it would lead to an even more dramatic inflation undershoot than the second scenario. To end up here would be a mistake.
Taylor also outlines in his speech how the UK could find itself on the end of a “double diversion phenomenon” as Donald Trump’s tariff war diverts trade flows
He explains how this could lead to more goods from China arriving in the UK, unless London takes protectionist trade measures, making the “bumpy landing” more likely, saying:
First, the US raises barriers on imports from low-cost producers, who then redirect their goods to third countries, like the EU, who in turn respond with further barriers to those low-cost producers, who then move on again to direct their large flows of exports to an ever-smaller target group of open export markets. Naturally, the UK comes to mind as one of those potential targets.
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Goldman Sachs profits jump too
Kalyeena Makortoff
An investment bank rebound has also boosted earnings for Goldman Sachs, where Q3 profits have jumped 37% to $4.1bn (£3bn).
That is up from just under $3bn during the same period in 2024, and was driven by a 42% surge in investment banking fees, thanks to the same jump in mergers and acquisitions and IPOs that boosted earnings at its larger rival JP Morgan (which reported results earlier today – see here for more).
Goldman’s CEO and chairman David Solomon says:
“This quarter’s results reflect the strength of our client franchise and focus on executing our strategic priorities in an improved market environment.”
However, he seemed to hint that the bank would be looking to cut costs, saying it needed to “operate more efficiently” and harness the benefits of AI.
Solomon said:
“We know that conditions can change quickly and so we remain focused on strong risk management. Longer term, we are prioritizing the need to operate more efficiently to seamlessly deliver the firm to our clients helped by new AI technologies.”
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