The United Kingdom‘s economy faces a significant and growing risk of a ‘hard landing’, a scenario characterized by recessionary dynamics and a sharp downturn, according to a stark warning from a key Bank of England policymaker. Alan Taylor, an external member of the Bank’s Monetary Policy Committee (MPC), has expressed concerns that the central bank’s continued reluctance to lower interest rates quickly, coupled with stubbornly high borrowing costs, is pushing the economy towards a more forceful contraction than a gentle slowdown.
The Looming Threat of a ‘Hard Landing’
In recent commentary, Taylor has outlined a pessimistic outlook, suggesting that the era of a ‘soft landing’ – where inflation returns to the Bank’s 2% target without significant economic pain or job losses – is increasingly unlikely. Instead, the most probable outcome, in his view, is a ‘bumpy landing’. This would see inflation fall below the 2% target by late 2026, but only after the economy has experienced a sustained period of weakness, with output and employment remaining below potential. However, Taylor stressed that the risk of a ‘hard landing’, involving outright recessionary forces, is now ‘not trivial’ and is rising. He believes that the current restrictive path of interest rates may have ‘braked too hard’, potentially hindering inflation’s smooth return to target.
Inflationary Pressures and Monetary Policy Divisions
The news comes as the United Kingdom grapples with persistent inflation. The Consumer Prices Index (CPI) remained at 3.8% in August 2025, unchanged from July and near its highest point since January 2024. Notably, food price inflation accelerated to 5.1% in August, its highest rate since early 2024. The International Monetary Fund (IMF) has forecast that UK inflation will average 3.4% in 2025, making it the highest in the G7 group of leading economies.
This inflationary backdrop complicates the Bank of England’s monetary policy decisions. While the MPC has been gradually reducing interest rates from their peaks, there are clear divisions among its members. Taylor is among those advocating for faster rate cuts, suggesting he would likely vote for a reduction at the November meeting. In contrast, other policymakers, such as Catherine Mann, have argued for rates to remain higher for longer to ensure inflation is fully tamed and to bolster consumer confidence. The recent MPC meeting in September 2025 saw a 7-2 split in favour of holding interest rates at 4%, reflecting this policy divergence.
Economic Performance and Labour Market Concerns
The United Kingdom‘s economic performance in 2025 has shown a mixed picture. After a strong first quarter, economic growth moderated significantly in the second quarter, expanding by 0.3%. Forecasts suggest that annual GDP growth for 2025 will likely hover around 1.3%.
Adding to the concerns, the labour market is showing signs of cooling. The unemployment rate rose to 4.8% in the three months to August 2025, its highest level since mid-2021. While some forecasts predict the unemployment rate to stabilize around 4.7% in 2026, others suggest it could climb towards 5% by the end of the year. This weakening labour market is a key factor influencing the debate around interest rate policy.
Trade Diversion and Import Price Trends
Taylor also noted that import prices have been falling, a trend he expects to continue and potentially accelerate, provided the UK maintains an open trade policy. Global trade dynamics, including rising tariffs imposed by countries like the US, are leading to ‘trade diversion’. This phenomenon can result in goods being redirected to markets like the UK, potentially lowering import prices. However, this also introduces complexities, with potential impacts on global price levels and currency exchange rates. Business sentiment remains subdued, partly due to ongoing macroeconomic headwinds and uncertainty surrounding trade policies.
Navigating an Uncertain Outlook
The Bank of England faces a delicate balancing act. While inflation remains above target, there is a growing concern that keeping borrowing costs too high for too long could stifle economic growth and trigger a recession. The risk of a ‘hard landing’ highlights the challenges ahead for the United Kingdom‘s economy, underscoring the importance of careful and data-dependent monetary policy decisions in the coming months.
