The Economics Show How should central banks respond to US tariffs?
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May 19, 2025 
Swati Dhingra, a member of the Bank of England Monetary Policy Committee and an associate professor at the London School of Economics, shares her insights on the intersection of trade and monetary policy. She discusses the UK's vulnerability to trade shocks and highlights what her colleagues overlooked in recent data. Dhingra also explains why she resisted a sharper interest rate cut, emphasizing the nuanced challenges posed by US tariffs. The conversation dives into the implications of external factors for UK consumption and careful policymaking in response to global economic fluctuations.
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Trade's Crucial Role in UK Economy
- Trade matters hugely more for the UK than the US in monetary policy due to openness and import exposure.
- Indirect import reliance, like embodied energy in food, raises UK consumer prices influence to about 35-40%.
Data Signals for Rate Cut
- Swati Dhingra saw producer price inflation falling and labor market churn reducing, signaling easing inflation pressure.
- These signals led her to support a quicker interest rate cut than her colleagues at the Bank of England.
Wage Growth Vs Weak Spending
- Despite real wage growth, UK consumption remains weak, challenging the 'real wage resistance' idea.
- Unlike the US, UK households appear to save more, weakening the link between wages and spending growth.