Keep interest rates at 4% to help UK households, urges Bank of England policymaker

theguardian.com:

A senior Bank of England policymaker has said interest rates should be held at 4% amid signs of cooling inflation, rather than adding to pressure on households and businesses with a further rise in borrowing costs.

Swati Dhingra, an external member of the Bank’s rate-setting monetary policy committee (MPC), said higher borrowing costs would pose a “material risk” to the UK economy.

“It risks unnecessarily denting output at a time when the economy is weak and deepening the pain for households when budgets are already squeezed through 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 return the economy sustainably to our 2% inflation target in the medium term.”

Her intervention comes amid expectations in the City of London that the Bank will raise rates at its next meeting on 23 March. Financial markets have fully priced in a 0.25 percentage point increase to 4.25%, with some investors betting on a bigger 0.5 percentage point rise.

Financial markets have shifted to take account of the prospect of the US Federal Reserve raising borrowing costs higher than previously expected, 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.

Threadneedle Street has raised rates 10 times in succession since December 2021 in response to the UK’s annual inflation rate soaring to more than five times its target of 2%. However, economists caution that the impact from higher rates will take time to