LONDON (Reuters) – Rising interest rates could lead to a deeper and longer recession, Bank of England rate setter Swati Dinghra said in an interview published on Saturday, adding there was little sign of a recession. Demands for higher wages could lead to an upward wage-price spiral.
While most of her colleagues supported a 75 basis point hike to 3% last month, Dhingra voted for a half percentage point rate hike last month and later Told lawmakers that the expected recession could be exacerbated if the central bank pushes up borrowing costs further.
‘ she told the Observer. ‘That’s what I think we should all be worried about…if austerity continues at the pace it is now, are we going to end up prolonging and deepening the recession? “
In the interview, she also said there was little sign in the labor market that workers’ demands for wage increases would lead to persistently high inflation, which has reached a 11 year high ).1%.
Britain faces a winter of industrial unrest as workers from railway staff and teachers to nurses and paramedics take strike action, demand higher wages as they struggle with a cost-of-living crisis.
“Wage price spirals mean that wages should be higher than the rate of inflation,” Dhingra told the paper. “Given real wages are falling , which suggests that we have not yet reached the point of the wage-price spiral. “
She said those expecting further sharp rate hikes did not take into account the Bank of England’s survey suggesting that investment and employment will fall over the next two years.
“These are not trivial numbers. The market clearly doesn’t appreciate the level of pessimism that could be good for the UK economy,” she said. “The slowdown is here. “