Bank of England monetary policy committee policymaker Swati Dhingra said there was no need for further interest rate hikes, in contrast to the more hawkish tone being struck by the chief of the US Federal Reserve this week.
Dhingra, an external member of the MPC, said this morning that "given little evidence of further cost-push inflation" further tightening of policy such as through another interest rate hike "is a bigger risk to output and the medium-term inflation target".
This view is less of a surprise if you know that at last month's MPC meeting Dhingra, an associate professor of economics at the London School of Economics, voted to leave interest rates unchanged, though her colleagues voted to raise the UK base rate by half a percent to 4%.
Dhingra's policy views were part of a wider explanation of how "trade shock" has affected inflation, in a speech given this morning at the Resolution Foundation.
She said the sharp rise in the price of imports relative to the price of UK exports and the inflationary pressure arising from this shock are "unprecedented in the history of the MPC".
There is an "absence of similar episodes to learn from", she added, noting that while the oil shocks of the 1970s created larger deterioration in terms of trade, shocks are "likely to transmit differently" now due to the evolution of the global and domestic economy, and shifts in bargaining power between economic agents and the emergence of global value chains.
"In my view, a prudent strategy would hold policy steady amidst growing signs external price pressures are easing, and be prepared to respond to developments in price evolution," she said.
"This would avoid overtightening and return the economy sustainably to our 2% inflation target in the medium-term."
Yesterday, fellow BoE rate setter Catherine Mann also spoke on inflation, warning that UK firms are continuing to raise prices, driving up UK inflation, despite the price of gas and imported goods falling.
She raised concern about the strong pricing power exhibited by firms, which many consumers have been willing to pay despite the cost of living crisis.
Last week, BoE boss Andrew Bailey hinted that interest rate hikes will pause – but that "nothing is decided" – adding that he would "caution against suggesting either that we are done with increasing bank rate, or that we will inevitably need to do more".
The BoE view, especially from Dhingra, contrasts with US central banking counterparts.
Yesterday, in Washington, Fed chief Powell challenged the market's view that retreating inflation could soon allow the global economy to avoid anything more than a shallow recession and enable interest rates to be cut before long.
Following a strong recent run of US data, Powell suggested the US economy is running hot and that interest rates may go higher than expected, faster than expected, which has resulted in the Fed now being expected to press ahead with more aggressive tightening.
The Bank of England, says TickMill market analyst James Harte, "has been reluctant throughout its tightening cycle [and] has recently signalled that it might be about to pivot on rates."
But despite the hints at further dovishness after the BoE hiked rates to their highest level in 14 years in February, the market view is for a nailed-on quarter-point hike in March.
UK rates are expected to rise to a peak of 4.75% in September, based on the overnight index swap market, implying three more hikes of 25-basis-points (bps) to come in 2023.
This path is 50bps higher than on 3 February – which was the day after the February monetary policy decision when the dovish BoE guidance reduced market expectations for the peak rate to 4.25% from 4.5%.
Berenberg economist Kallum Pickering forecast two more hikes to 4.5%.
"As the base effects of last year’s energy price surge wash out and as the disinflationary effects of tight fiscal policy and the housing market correction lower domestically generated price pressures, headline inflation should fall fast towards the 3-4% range by the end of the year and to the 1.5-2.0% range during mid-2024, in our view.
"In light of this, and given the upcoming lagged effects of monetary policy, the BoE should be able to pause after a final 25bp hike on 23 March and adopt a wait-and-see approach.
"However, following the resilient economic data in January and February, we see the risks as skewed modestly towards one additional 25bp hike to 4.5% at the 11 May meeting."