© Reuters. BoE leader highlights services inflation, but talks about room for interest rates to normalizeBank of England President Swati Dhingra still sees services inflation as resilient in the UK, but said there is scope to gradually normalize interest rates and maintain a level restrained enough to control prices. “Easing this strong monetary tightening and transmitting the effects to the real economy will take time, which will keep BoE interest rates restrained for a while even as we begin to normalize monetary policy,” Dhingra said at an MNI Connect event.
In her view, the services sector is not a good indicator of domestic pressures, in isolation from other economic indicators.
The director stated that she does not see a connection between concerns about increased demand and improved real wages, considering that consumption is still low in the United Kingdom. He pointed out that “British consumption is not recovering or accelerating to pre-pandemic levels, as we saw in the United States and the eurozone.” “Consumption in the UK, in fact, remains low compared to its international counterparts.”
During the event, Dhingra defended his vote in the Bank of England's recent monetary decision, supporting a 25 basis point interest rate cut. According to her, waiting for interest rates to be lowered will not be an inexpensive process for the British economy.
However, the leader avoided predicting the appropriate size of interest rate cuts when asked, stressing that the decision will be made according to available data and impending risks.
She noted, for example, that risks related to geopolitical tensions and global economic activity remain. “If demand accelerates again and causes inflation to rise, I may reevaluate my position,” he said.
