In a Financial Times interview, BoE MPC member Swati Dhingra articulated her concerns regarding the UK’s economic outlook and inflationary trends. As the sole member to vote for a rate cut in the last meeting, she cautioned against underestimating the downside risks and and urged not to take a risk on them.
Dhingra expressed apprehension about the adverse impacts of past policy tightening on growth, emphasizing the paradox of experiencing “higher-than-historic rates” of wage growth against the backdrop of significantly weakened consumption, which has declined by 5.9% relative to pre-pandemic levels.
This stark drop in consumption, according to Dhingra, is expected to persist, highlighting the “lagged effects” of monetary policy tightening yet to materialize fully. She questioned the rationale behind risking further economic weakening by maintaining high-interest rates when inflation appears to be on a “sustainable path.”
The conversation further delved into the challenges posed by the current consumption weakness, which Dhingra believes is unlikely to reverse swiftly enough to trigger a “resurgence in inflation”.
Her comments reflect a deeper concern over underestimating the downside risks to the economy, especially as the financial cushion provided by pandemic-era savings begins to diminish. Additionally, the noticeable decline in job vacancies signals further strain on the real economy.
“I don’t see why we should be risking that,” Dhingra emphasized.
