Bank of England rate-setter Swati Dhingra said 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 amid growing signs of 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 - 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.