In an interview with the FT, the external member of the Bank’s Monetary Policy Committee said she did not predict a resurgence in inflation given weak consumer spending.
“I am not fully convinced there is some kind of really sharp excess demand in the economy coming from the consumption side,” she said. “I am more concerned that we might be underplaying the downside risks.”
BoE’s Huw Pill: Interest rate cuts possible as ‘reward’ for lower inflation
According to Dhingra, there are fewer “buffers” supporting households currently, as pandemic-era savings drop and job vacancies decline.
“You might see the real economy start to get negatively hit in a more profound way – and I do not see why we should be risking that,” she added.
Dhingra was the only member of the MPC who voted in favour of an interest rate reduction at the committee’s latest meeting last week, advocating for a quarter-point cut from 5.25%.
Six members of the MPC voted to maintain rates at the current level, while two others favoured a hike due to concerns over persistent inflationary pressures.
Bank of England holds at 5.25% and predicts higher rates into 2027
On Monday (5 February), the BoE’s chief economist Huw Pill said it would be “premature” to discuss rate cuts, but he argued that, as underlying domestic inflationary pressures ease, “we can begin to reduce bank rate”.
Meanwhile, Dhingra told the FT that not cutting rates immediately could come with a risk of “overtightening” monetary policy as inflation eases.
Given that it takes some time for monetary policy actions to affect the economy, Dhingra said that “even if you cut now, we are basically still looking at a pretty restrictive period of monetary policy”.
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