BoE’s known dove, Swati Dhingra, reinforced her stance on the necessity for a rate cut in her speech today, underscoring a cautiously optimistic inflation outlook and highlighting concerns over living standards and consumption.
Dhingra described the trajectory of headline inflation as “bumpy but downwards,” emphasizing that consumer price inflation has been on a “firm downward path” for some time, with expectations of further declines. This perspective is supported by producer price inflation trends, which typically precede changes in consumer prices, suggesting that the easing of inflation pressures is set to continue.
She also raised concerns over the “downside risks to living standards” that could result from maintaining tight monetary policy stance. She pointed out that, despite reduction in inflation rates and some recovery in real wages, consumption in the UK remains subdued, still “below its pre-pandemic level.” This situation presents a “striking contrast” to Eurozone and US, where consumption has already rebounded.
In her critique of the current policy direction, Dhingra argued against the inclination to err on the side of overtightening monetary policy. She cautioned that such an approach often leads to “hard landings and scarring of supply capacity,” which could further deteriorate living standards.
Full speech of BoE’s Dhingra here.
