Inflation will fall and stay at the Bank of England’s 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.

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’s “conservative” estimates of a lowering of annual inflation by 0.2 percentage points over the next two years.

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’s target of 2 per cent by the middle of this year — marking the first return to target in five years.

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’s cost of living measures in the budget. This should support the case for more interest rate cuts from the current 3.75 per cent, Taylor said in a speech in Singapore.

The easing in the cost of living will be “sustainable, 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,” he added.

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.

Taylor said there were already “signs 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”.

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The UK government has also warned of Chinese “dumping” in the wake of tariffs. Taylor said the overall impact of tariffs imposed last year “should eventually feed through [and] trade should prove resilient. Both of which would be welcome disinflationary forces that keep inflation well anchored.”

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Ruth Gregory, deputy chief UK economist at Capital Economics, said annual inflation would “plunge” to 2 per cent in April and interest rates would be cut three times to end the year at 3 per cent, lower than the two cuts forecast by investors.

“We think 2026 will be the year that inflation in the UK falls below inflation in the US. As it becomes clear that inflation has fallen to the 2 per cent target and is likely to stay there, we think the Bank of England will come round to our view that more interest rate cuts are needed,” she said.

In a separate speech on Wednesday, Sir Dave Ramsden, deputy governor of the Bank of England in charge of markets, said policymakers were exploring how to design “failure arrangements” for stablecoins backed by sterling assets.

He said the digital currency, which is linked to an asset like a currency or commodity, needed to be regulated to “protect coin holders and support financial stability if a systemic stablecoin were to fail”.

The Bank is devising rules with the Treasury to “maintain trust in money” with the use of privately issued stablecoins.

Ramsden said “stablecoins may require some form of insurance scheme analogous to that which applies to bank deposits and a statutory resolution arrangement that ensures coin holders are preferred creditors in any insolvency process”.