A member of the Bank of England’s interest rate committee has contradicted one of her colleagues by saying an overly cautious approach to borrowing costs will damage the economy.
Swati Dhingra, an external member of the monetary policy committee (MPC), said the factors driving inflation will soon fade and cuts to interest rates are necessary to support business and the economy.
Her verdict contrasts with that of Megan Greene, another external voter, who this week told an audience in Glasgow that policymakers should take “a cautious approach to rate cuts” rather than gamble with economic uncertainties, which were becoming “more frequent”.
Ms Dhingra takes the view that inflationary pressure is no more of a problem than is being experienced across Europe and that the economy would be damaged by restrictive monetary policy.
The UK was also not suffering from more acute food price inflation compared with continental economies, she said.
“The effects of the shocks driving the UK’s current high inflation relative to Europe will fade, and thus, we should not be overly cautious about cutting interest rates” she said.
“The difference in inflation between the UK and our continental neighbours can be largely explained by administered prices and global commodity shocks. These should pass.
“We can afford to cut rates further and not put additional strain on economic growth without threatening the inflation target.”
Earlier this week the Organisation for Economic Development and Cooperation raised its projections for annual prices in the UK to end the year at 3.5%,the highest in the G20 but below the current 3.8%.
Ms Dhingra, a trade economist at the London School of Economics, voted against the majority of the nine-strong MPC at this month’s meeting and called for interest rates to be cut to 3.75% from its current 4%.
The Bank has reduced interest rates five times over the past 12 months.
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