Swati Dhingra, regarded as the most dovish member of the Bank of England‘s interest-rate setting committee, has voiced concerns over the potential repercussions of maintaining restrictive interest rates amidst weakening demand in the UK economy. Dhingra, who advocated for a rate cut at the recent meeting, warned of the risk of a significant economic shock if policy continues to prioritise higher rates.
In an interview with the Financial Times published on Tuesday, Dhingra underscored the prevailing downside risks to the economy that policymakers may be underestimating. She emphasised the potential for a pronounced negative impact on the real economy if restrictive measures persist, highlighting the uncertainty surrounding a swift reversal of such adverse effects leading to a resurgence of demand-driven inflation.
Dhingra’s stance reflects her persistent opposition to raising rates since the end of 2022, culminating in her historic vote for a rate cut – the first such dissent within the Monetary Policy Committee in nearly four years since the onset of the pandemic.
While the majority of the nine-member panel opted to maintain the key lending rate at its highest level since 2008 in a bid to curb inflation, which continues to exceed the 2% target, Dhingra emphasised the need to reassess the approach. She rejected the notion that elevated rates are necessary to constrain activity and facilitate a return to target inflation levels.
Expressing skepticism about the presence of significant excess demand in the economy, particularly driven by consumption, Dhingra cautioned against downplaying the risks of economic downturns. She emphasised the importance of considering potential downside risks and adopting a cautious approach to monetary policy.
Dhingra’s remarks highlight diverging viewpoints within the Bank of England regarding the appropriate course of action amidst evolving economic conditions. As policymakers navigate the delicate balance between curbing inflationary pressures and supporting economic growth, Dhingra’s dissenting voice underscores the complexity of the decision-making process and the importance of carefully weighing the potential consequences of policy actions on the broader economy.
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