Bank of England (BoE) Monetary Policy Committee (MPC) member Alan Taylor said during a fireside chat at Deutsche Bank in London during European trading hours on Monday that UK services sector inflation had fallen at a more modest pace than he expected.

Comments

Weaker forecasts for the output gap and unemployment.

CPI in services did not fall as quickly and as much as expected.

CPI in services has been somewhat worrying in recent months.

I expect service price inflation to stabilize this year as wages rise.

I have become convinced that we are heading towards normalization of inflation at a reasonable pace.

A threat to the prospects may be weaker than expected productivity growth.

Employment forecasts are bleak.

The risk is shifting towards lower inflation and higher unemployment.

Perhaps we will see 2-3 rate cuts before we reach a theoretically neutral level.

Market reaction

It appears that Taylor’s BoE comment on the pound sterling (GBP) will have a diminutive negative impact. At the time of writing, GBP/USD is 0.17% higher at near 1.3500, even after the initial significant gains.