MNI: New BOE MPC Member Dhingra's Focus On Supply Chain Woes

Incoming Bank of England Monetary Policy Committee member Swati Dhingra is a trade economist who has long argued for the benefits of deep trade agreements, the high costs of Brexit and the impact of supply chain disruptions, but has avoided commentary on any likely pace and scope of monetary tightening.

Dhingra, who replaces hawk Michael Saunders after the August meeting and forecast round, will bolster the Bank’s growing research on the activity and inflation effects of supply chain and trade disruptions. She has already carried out research with Senior BOE Economist Rebecca Freeman, concluding in a paper published last year that potential gains to the UK from future trade deals “would not offset its losses from leaving the EU.”

The LSE professor has expressed pessimism over the chances of the UK making significant productivity gains or of the MPC gaining control of inflation in the near term, saying in response to a Financial Times survey at the start of the year that while the MPC will try, “there are too many inflationary pressures and structural problems.”

Publicly, she has been best known for her commentary on the costs of Brexit. Her research suggests that deep trade agreements, rather than just removing tariff barriers, can increase trade in goods and services by over 25% in some cases. The Bank, facing with the lingering effects of Brexit, China’s zero Covid policy and the Ukraine war, has been examining the impact of supply disruptions, although quantifying the effects is hard (MNI INSIGHT: BOE Forecasters Challenged By Supply Chain Snag ).

SUPPLY CHAIN EXPERTISE

The May Monetary Policy Report, citing Freeman’s work, said the impact of Russia’s invasion of Ukraine “could create bottlenecks which have wider impacts on other sectors further down the supply chain … exposure to global shocks can therefore be higher than direct trade links imply.”

While Dhingra will bring her expertise on supply chains and trade to the mix, the immediate question will be her view on the necessary extent of tightening in response to the inflation shock, with the MPC estimating that headline CPI could hit 10% in October. The outgoing Saunders is one of the minority advocating a 50-basis-point hike.

Assessing the likely initial stance of policymakers, who will have time and the Bank’s extensive resources to guide them in decision making, is fraught with uncertainty. Catherine Mann, the most recent MPC appointee, was seen as dovish when she joined but has swiftly moved to being one of the most hawkish members, advocating more rapid tightening now to prevent the upward ratchet of prices, wages and price-setting.