A senior Bank of England policymaker has stated that interest rates should be held at 4% in the face of signs of cooling inflation, rather than adding to the pressure on households and businesses by raising borrowing costs further.
Higher borrowing costs, according to Swati Dhingra, an external member of the Bank’s rate-setting monetary policy committee (MPC), would pose a “material risk” to the UK economy.
“It risks unnecessarily reducing output at a time when the economy is weak and exacerbating the pain for households at a time when budgets are already being squeezed by rising energy and housing costs,” she said in a speech to the Resolution Foundation thinktank in London.
“In my view, a prudent strategy would hold policy steady amidst growing signs external price pressures are easing, and be prepared to respond to developments in price evolution. This would avoid over-tightening and allow us to return the economy to our 2% inflation target in the medium term.”
Her intervention comes as the City of London anticipates that the Bank of England will raise interest rates at its next meeting on March 23. Markets have fully priced in a 0.25 percentage point increase to 4.25%, with some investors betting on a larger 0.5 percentage point increase.
After the American central bank’s chair, Jerome Powell, said there was still “a long way to go” to tame inflation in the world’s largest economy, financial markets have shifted to account for the possibility of the US Federal Reserve raising borrowing costs higher than previously expected.
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