MPC member urges MPC to cut interest rates in order to reduce living costs

One of Bank of England’s doveish rate-setters called for interest rates to be cut in order to reduce the cost of living, and because inflation is on a “firm downward trajectory”.

Swati Dhingra is an external member on the monetary committee. She said it was time for the Bank “to start normalising [monetary policies] so that we can stop squeezing the living standards in order to bring down inflation.” The cost of living is being borne by us, and we don’t have to pay it. Swati Dhingra, a professor at the London School of Economics who has been voting for rate reductions since the beginning of the year, said that now was the time to “start normalising [monetary policy] so we can finally stop squeezing living standards in order to try and get inflation down.”

Six of the nine members of the MPC voted in favor of maintaining borrowing costs at 5.25 percent. Andrew Bailey, Bank governor, and his deputy indicated that the evidence for monetary loosening was increasing.

The official figures that will be released this week should show that the headline inflation rate has remained at 2%. The MPC will be paying particular attention to the dynamics of wages and inflation in labour-intensive service sectors.

Dhingra said on the rest is money podcast, that unlike other countries in Europe and America, Britain was not experiencing a “consumption explosion” where household spending drove up the price of goods and services. She said that if we start with the high interest rate of 5,25 percent, it will take time for [rates] to be moderated and to have an impact on the real economy. “During this time, the CPI was on a very steady downward trajectory.

“The direction of the various indicators is promising, and we hope that this year will be able maintain inflation at 2%.”

On August 1, the MPC will make its next interest rate decision and will also release a new set of forecasts about the state of the country’s economy and inflation. The financial markets have reduced their bets that rates will fall in August below 50% after last week’s data showed the fastest growth in two years. This suggests that tighter monetary policy is not slowing down economic activity.

Three more rate-setters will be needed to vote in August for a reduction to bring the MPC to a majority. Dhingra, the deputy governor of the Bank and Sir Dave Ramsden voted in favor of loosening the MPC’s stance at its last two meetings.

Dhingra stated that there would be a greater deflationary impact from goods, but that wage increases and service inflation were “above historic norms.” Are we going to maintain the [inflation] goal or see a sharp rise in inflation in the future? “My argument is that [the latter] won’t happen.”

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