Inflation : UK rate rises under the spotlight - again.
Inflation - the cost of living - is the number one issue in Britain today.
It is under-discussed in the House of Commons as MPs have no say in it: the task of controlling inflation lies with Mervyn King and his nine-strong Monetary Policy Committee, and its members are rarely interviewed. Little wonder, as a lot of them should be feeling fairly sheepish. But not Andrew Sentance.
He's been arguing for a rate rise for months, and doesn't have long left to serve on the MPC, so he can speak quite freely.
Inflation has been above target almost all the time he's been on the MPC, he says, so in what way can it be described as a blip?
"I still think it would possible to have a gradual rise in interest rates, but I think the longer it's left the greater the risk that we end up with sharp rises, as the MPC discover that medium term inflation is higher than they thought. That is not good for the recovery" says Sentance.
Leaving interest at this rock-bottom rate, while Britain vies with Greece to have the worst inflation in the Western world, gives the impression, he fears, that the Bank isn't that concerned about inflation, and has taken upon itself the nurturing of a debt-fuelled recovery.
"It's sending a weak signal and risks undermining the Bank's credibility in committment to that target and leading to an upwards drift in terms of expectations,", Sentance continues.
He also says that the Bank's econometric model is wrong, and that it is underestimating how low rates cause a weak pound and imported inflation.
There is no doubt that the outlook for monetary policy in the UK will provide the focus for investors in a shortened trading week ahead of the Easter public holiday.
Minutes from the Bank of England’s monetary policy committee meeting in April, to be released on Wednesday, will be scrutinised for clues on its latest thinking on the timing of a rate rise. It is expected that the number of members voting to raise the cost of borrowing from the historic low of 0.5 per cent will have remained at three, with all other votes cast to keep rates on hold.
Such a pattern would end the three-way split on the committee. Adam Posen urged a further £50bn in special stimulus measures as recently as March, countering Andrew Sentance’s vote for a 50 basis point increase.
May’s meeting will be Mr Sentance’s last as an MPC member, having been its leading hawk in advocating rate increases at the past 11 meetings. At the March meeting, he was joined by Spencer Dale, the Bank’s chief economist, and external member Martin Weale in calling for an increase, although both favoured a 25bp rise.
The votes were cast before the surprise fall in consumer price inflation last week, which will have eased the dilemma faced by the Bank as it grapples with the conflicting economic demands of low growth and stubbornly high inflation.