(Bloomberg) — The Bank of England’s most dovish interest-rate setter said demand in the UK economy is so weak now that there’s a risk of a big shock from maintaining restrictive interest rates.
Swati Dhingra, who voted alone to cut the BOE’s benchmark lending rate from 5.25% at this month’s meeting, said policymakers are underestimating “downside risks” to the economy.
“You might see the real economy start to get negatively hit in a more profound way — and I don’t see why we should be risking that,” Dhingra said in an interview with the Financial Times published Tuesday. “It is hard to imagine how that will get reversed so sharply that you will see a resurgence of inflation (driven by) demand pressure.”
The remarks explain why Dhingra has resisted higher rates since the end of 2022 and this month became the first member of the Monetary Policy Committee to vote for a cut since the outset of the pandemic almost four years ago.
The rest of the nine-member panel opted to hold the key lending rate at the highest since 2008 in a bid to tame inflation that remains double the 2% target.
Dhingra dismissed the idea that the BOE should maintain high rates to restrain activity and ensure inflation falls back to target.
“I’m not fully convinced there’s some kind of really sharp excess demand in the economy coming from the consumption side,” she said, according to the FT. “I’m more concerned that we might be underplaying the downside risks.”
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