The Bank of England needs to “stop squeezing living standards” and cut interest rates, a senior policymaker has said.
Swati Dhingra, a member of the central bank’s monetary policy committee (MPC), said official borrowing costs should be cut at its next meeting on 1 August to ease pressure on households and businesses.
“Now is the time to start normalising [interest rates], so that we can then finally stop squeezing living standards the way we have been to try and get inflation down,” Dhingra told the Rest is Money podcast. “We are weighing on living standards and that cost does not need to be paid.”
Whether the Bank cuts borrowing costs in August for the first time since the Covid pandemic is thought to be on a knife-edge, with City investors pricing in a 50/50 chance of a cut from the current level of 5.25%.
Households’ hopes for a cut received a setback last week when the Bank’s chief economist, Huw Pill, warned that key measures of inflation remained “uncomfortably high”. Jonathan Haskell, another member of the MPC, said last week that he favoured keeping rates unchanged.
The most dovish member of the MPC, Dhingra has been a consistent advocate of cutting interest rates since first casting a vote to reduce official borrowing costs in February.
She said inflation had fallen sharply and was on track to moderate further in the coming months. The consumer prices index (CPI) eased to 2% in May, down from 2.3% in April, hitting the Bank’s target.
Producer prices – the prices charged by manufacturers, which can reflect future changes in consumer prices – have also fallen in recent months, according to official figures. Dhingra said this was a harbinger for consumer prices.
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“We still think there is more to come in terms of deflationary forces, including if you look at non-energy services which is what people have been concerned about,” she said.
Interest rates were raised at 14 successive meetings of the MPC between December 2021 and August 2023, taking them from 0.1% to their current level – driving up the cost of mortgages and loans for households and businesses.