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Cut interest rates or risk ‘more profound’ impact on UK economy, Bank MPC member warns

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The Bank of England should cut interest rates immediately or risk a “more profound” hit to the economy, a Monetary Policy Committee (MPC) member said today.

Swati Dhingra, the only member of the MPC to back a rate reduction in the Bank’s most recent meeting, warned that the central bank was “underplaying the downside risks”.

In an interview with the Financial Times, Dhingra argued that there was little risk of a resurgence in inflation given the weakness in consumer spending.

“I’m not fully convinced there’s some kind of really sharp excess demand in the economy coming from the consumption side,” she said, pointing to the extremely weak retail sales figures at the end of last year.

Swati Dhingra

With buffers built up during the pandemic starting to diminish, Dhingra said: “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”.

Her comments come a week after the Bank left interest rates on hold for the fourth consecutive meeting last week, meaning the Bank Rate remains at a post-financial crisis high of 5.25 per cent.

Although policymakers opened the door to cutting interest rates later this year, Andrew Bailey, governor of the Bank, said rate-setters needed “more evidence” that inflation would fall sustainably to target before rate cuts could begin.

Headline inflation has come down significantly from peaks of more than 10 per cent, currently standing at four per cent.

The Bank predicted that inflation would fall to two per cent as soon as the second quarter, but cautioned that underlying pressures would contribute to an uptick in inflation in the remainder of the year.

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