Swati Dhingra, a member of the Bank of England’s Monetary Policy Committee, has warned that higher interest rates could have a disproportionate impact on younger workers and low-income earners. Speaking to the BBC, she said that the economy had already slowed and that only 20% to 25% of the impact of interest rate hikes had been fed through to the economy. Each time the committee voted to raise interest rates, Dhingra either voted against a rise or requested a smaller one than was ultimately decided, citing concerns over the impact on households and businesses. Interest rates typically take at least a year to fully affect the economy, as higher debt repayments force households to limit spending. Businesses may also cut jobs, with over 200,000 shed from the UK’s labour force in the early summer.
Due to recent data, including a dip in activity or GDP in July, the Bank of England now expects the economy to grow only very modestly over the second half of this year. Dhingra thinks it may be even worse. Weaker spending and job cuts ultimately triggered by higher rates could hurt younger workers and those on lower wages particularly badly – the same groups who are among the hardest hit by inflation. Nevertheless, Dhingra claims that her colleagues did not take the decision to raise rates lightly.
The IMF has cautioned that interest rates may stay close to current levels for five years, and some Bank officials have suggested they are unlikely to fall soon. The Bank’s decision to not raise rates last month was largely unexpected, but Dhingra points out that if growth falls by much more than expected, a cut may happen sooner. Uncertainty surrounds many of the Bank’s decisions and highlights the need for caution. If the economy grows too slowly and more jobs are cut, inequality may rise, warns Dhingra
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