(Bloomberg) -- Bank of England policymaker Swati Dhingra warned that delaying interest-rate cuts comes at a cost for living standards and could trigger a hard landing for the UK economy.

Dhingra, the most dovish rate-setter at the BOE, said inflation is already on a “firm downward path” as she reiterated her case to begin loosening monetary policy.

“The evidence to err on the side of overtightening is not compelling in my view as it often comes with hard landings and scarring of supply capacity that would weigh further on living standards,” she said in a speech at a Market News International connect event on Wednesday.

Her remarks suggest she will continue to push for a rate cut next month, with inflation heading to the 2% target and after the economy slipped into recession in the second half of 2023. 

Dhingra alone on the nine-member Monetary Policy Committee voted to cut rates this month, though other policymakers have signaled that policy will be loosened in 2024. On Tuesday, Governor Andrew Bailey said that market bets on rate reductions this year are “not unreasonable,” adding that inflation does not need to fall to 2% before it shifts its policy.

The majority are concerned about persistent underlying price pressures. The bank is monitoring high services inflation and a tight labor market closely for signs for sticky prices.

“Price developments strongly signal that inflation is already on a path of sustainably meeting our target over the medium term,” said Dhingra. “Waiting for lagging indicators of domestic relative price growth to fall sharply before reducing rates comes with a cost of foregone improvements in living standards and a risk of lowering supply capacity for the future.”

She also warned that the economic backdrop remains weak despite signs from business surveys that the UK returned to growth at the start of 2024. 

“The outlook for demand remains weak and less resilient than previously assumed,” Dhingra said. “This further diminishes the likelihood of sustained inflationary pressures.”

Answering questions following the speech, Dhingra challenged some of the key arguments made by her colleagues to justify not cutting rates right now. She said:

  • Services prices are not a good measure of domestically generated inflation
  • There is little no correlation between rising economic inactivity and inflation
  • Refraining from cutting rates is not “costless, it comes with pretty substantial costs”
  • Policy will continue to bear down on demand, even when rates are cut
  • Dhingra also said rising rents and mortgage costs had acted as a drag on disposable incomes, as evidenced in weak retail sales last year





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