Bank of England MPC's Dhingra gives speech at the Resolution Foundation in London
Bank of England Monetary Policy Committee member Swati Dhingra speaks during an event in London, Britain March 8, 2023. Reuters

Bank of England rate-setter Swati Dhingra said on Wednesday that it would be prudent not to raise interest rates further, as previous increases in borrowing costs are yet to feed through into an already weak economy.

Despite recent signs that Britain's economy may be holding up better than some economists had feared, Dhingra stuck to her view that the BoE risked harming the economy unnecessarily by raising rates too high.

"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," Dhingra said a speech to the Resolution Foundation think tank.

"This would avoid overtightening and return the economy sustainably to our 2% inflation target in the medium-term," she added, in her first major speech since joining the BoE's Monetary Policy Committee in August.

Along with Silvana Tenreyro, Dhingra voted last month to leave interest rates on hold at 3.5%, while the other seven members of the Monetary Policy Committee voted through an increase to 4%.

Financial markets now fully price in a further 0.25 percentage point increase on March 23 and see a greater than 50% chance that BoE rates will reach 5% later this year after Federal Reserve chief Jerome Powell signalled further interest rate hikes in the United States were likely.

Dhingra on Wednesday stressed that the risk of too-high interest rates were a larger threat than the risk of embedded inflation pressure.

"My conclusion is that, given little evidence of further cost-push inflation, further tightening is a bigger risk to output and the medium-term inflation target," she said.

Her views contrast with those of Catherine Mann, another external member of the MPC, who on Tuesday doubled down on her view that higher interest rates are likely needed to lessen the risk that double-digit inflation becomes ingrained.

Dhingra - an associate professor at the London School of Economics who specialises in trade issues - said her analysis of supply chains suggested more of Britain's inflation overshoot was due to global factors than domestic pressures than previously thought.


The BoE is currently divided over how great the risk is that inflation falls more slowly than forecast, for example if last year's surge in energy prices leads to persistent upward shifts in wage growth and businesses' price setting.

Pay excluding bonuses in the final quarter of 2022 grew at its fastest rate since records began in 2001, excluding distortions during the COVID-19 pandemic.

Businesses surveyed by the BoE last month expect inflation in a year's time to be 5.9%, and 3.4% in three years in contrast to the BoE's forecast last month that inflation would be below its 2% target by the second half of next year.

Dhingra said she did not think either wage growth or inflation expectations offered good evidence of persistent domestically generated inflation pressures.

Wage growth tended to lag broader economic developments, and more forward-looking wage data was slowing. Better data on productivity and businesses' profit margins were needed to gauge its inflation impact.

Inflation expectations were often driven by current inflation, rather than having predictive power, she said.

"Those who put too much weight on those numbers, I think should have that in mind as well," she said.