Tuesday, April 26, 2011
Sentance's last bow (almost)
Posted by David Smith at 05:15 PM
Category: Thoughts and responses

As time has gone on, Andrew Sentance's arguments in favour of higher interest rates have got stronger and more sophisticated. As he says in today's speech, what started as tactical differences have evolved into something more fundamental. He disagrees with the monetary policy committee majority on the global economy, the role of sterling, the output gap and infllation expectations. His speech is here.

A flavour of his conclusions: "The MPC is now approaching its fifteenth year and has provided the UK with its most durable framework for monetary policy since the 1950s and 1960s. And it is a great credit to our current system that it has shown that it is capable of dealing with some formidable challenges. In my time on the Committee I believe our most significant achievement has been to help to stabilise the UK economy in the wake of the global financial crisis and provide a platform for economic recovery. I am very proud to have been able to contribute to the policy discussions and decisions which led to that outcome. But the rapidly changing world economy we now inhabit is always throwing up new challenges. And now the MPC faces the task of bringing inflation back to target in the face of continuing global inflationary pressures, with the recent experience of persistent above-target inflation providing an unhelpful backdrop.

"A great strength of the MPC is that its members can honestly express differences of view in an open and transparent way, and that means we are not forced to agree and minority opinions are respected. Over time, that should make for a better decision-making process. So while I have not been in agreement with the majority view on the Committee over the past year, I hope that the arguments I have made have not been in vain. And I suspect the issues I have raised in today’s speech – the impact of the global economy and the pound, the role of the “output gap” and the importance of expectations and credibility – will continue to be key issues for the MPC over the years ahead, as the Committee continues in its vital role of maintaining monetary stability in the United Kingdom."