Inflation will fall and stay at the Bank of England\u2019s 2 per cent target rate in the coming months, partly as a result of cheaper imported goods from China entering the UK, a rate-setter has said. <\/p>\n
Alan Taylor, an external member of the monetary policy committee, said the rerouting of goods caused by US tariffs on the rest of the world would have a bigger disinflationary impact in the UK than the Bank\u2019s \u201cconservative\u201d estimates of a lowering of annual inflation by 0.2 percentage points over the next two years. <\/p>\n
Taylor, who consistently voted in favour of interest rate cuts last year, said consumer price inflation would fall from 3.2 per cent to the Bank\u2019s target<\/a> of 2 per cent by the middle of this year \u2014 marking the first return to target in five years. <\/p>\n The fall in inflation will be the result of a reduction in import prices and lower regulated utility prices on the back of the government\u2019s cost of living measures in the budget<\/a>. This should support the case for more interest rate cuts from the current 3.75 per cent, Taylor said in a speech in Singapore. <\/p>\n The easing in the cost of living will be \u201csustainable, given cooling wage growth, and I now therefore expect monetary policy to normalise at neutral sooner rather than later. 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,\u201d he added.<\/p>\n US tariffs on the rest of the world have raised some imported prices for American consumers but are likely to have a disinflationary impact on other global markets as producers in China slash their prices in response to higher import taxes. <\/p>\n Taylor said there were already \u201csigns of substantial trade diversion into the UK and also into the EU, our main trading partner, with the latter more clearly evident from some of the policy responses to import surges in some sectors\u201d.<\/p>\n \u2022 The UK will turn a corner on inflation, but not on growth<\/a><\/p>\n The UK government has also warned of Chinese \u201cdumping\u201d in the wake of tariffs. Taylor said the overall impact of tariffs imposed last year \u201cshould eventually feed through [and] trade should prove resilient. Both of which would be welcome disinflationary forces that keep inflation well anchored.\u201d<\/p>\n