High rates ‘scarring’ UK economy, says Bank of England maverick Swati Dhingra

Rate fears: Swati Dhingra (pictured) was the only member of the Bank of England’s rate-setting monetary policy committee to vote for a cut in rates this month

A top Bank of England official has warned that leaving interest rates at the current level risks ‘scarring’ the British economy.

Swati Dhingra, the only member of the monetary policy committee (MPC) who voted for a cut in rates this month, said holding them at a 16-year high of 5.25 per cent poses a threat to living standards.

She warned it could lead to a ‘hard landing’ – or a painful slowdown – and ‘scarring’ with permanent damage to the economy.

The failure to cut rates posed ‘downside risks to living standards’.

Her comments came just days after Andy Haldane, the Bank’s former chief economist, said high interest rates risked ‘crushing’ the economy.

‘It’s one thing to have missed inflation on the way up, which happened, it’s quite another to then have crushed the economy on the way down,’ he said.

‘That double blow to credibility is one – if I were a central banker, in my old job – I would be looking to avoid.’

The Bank raised rates from a record low of 0.1 per cent in 2021 to 5.25 per cent but it did not stop inflation hitting a 40-year high, above 11 per cent.

Inflation is now 4 per cent – double the 2 per cent target – but with the economy in recession the Bank is again under fire for failing to react.

The MPC held rates at 5.25 per cent this month, in a three-way vote with Dhingra backing a cut, two members calling for a rise, and six winning out with a vote for no change.

This week, Bank of England Governor Andrew Bailey brushed off fears about the economy, telling MPs that the UK’s ‘very small’ recession may be over already.

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