Monday, March 07, 2011
Ben Broadbent appointed to the MPC
Posted by David Smith at 03:30 PM
Category: Thoughts and responses

The appointment of Ben Broadbent as the latest member of the Bank of England's monetary policy committee (MPC) is controversial for two reasons. 1. He's not a woman, so the MPC remains the preserve of middle-aged men. 2. He's from Goldman Sachs.

He is, however, a very good economist. He won't be as hawkish as Andrew Sentance, but he will approach the rate debat from the same side of the fence. This is from a piece he wrote for the FT on February 9, under the headline "Expect King to Raise Rates Sooner Rather Than Later".

"With inflation rising and growth stalling, Mr King faces a dilemma about how to respond. The situation is less bad than headlines suggest. Recent negative growth in the UK was a weather-related blip, while strengthening global growth and a weak exchange rate will absorb some of the fiscal consolidation. In short, it looks as if rates should rise sooner than Mr King would like ...

"Surveys suggest the credit crunch may have damaged productive capacity to a greater degree than first thought. More importantly, the rise in commodity prices might be part of an continuing trend. As a result, inflation this year will  average about 4 per cent the highest rate since targeting began in 1993, and more than twice what the MPC forecasted a couple of years ago."

"Some on the MPC are understandably nervous about losing their reputations as guardians of price stability. With bond markets still relatively stable, raising rates to pre-empt such a loss of credibility might be premature. Yet whatever happens, we should remember that the MPC cannot do much about the real forces buffeting the economy. During the good times too many analysts heaped praise on monetary policymakers for trends that were beyond their control. Today the danger is the opposite: wrongly blaming them for the years of famine that have followed."