Sentance: Bank of England in danger of losing credibility
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Former Monetary Policy Committee member Andrew Sentance has warned that the Bank of England is in danger of losing its credibility with the UK public due to its failure to tackle soaring inflation.
In an interview with Sky News, Sentance said that if inflation does not come down in the way that the BoE was suggesting it would have a huge knock-on effect to its commitment to that target.
He said: “I think that there is a big risk now emerging to the credibility of the bank.”
Sentance completed his five-year tenure with the BoE policymaker yesterday. Inflation has largely been above the Government target of 2 per cent for the majority of that time, while CPI currently stands at 4.5 per cent.
Sentance is one of three MPC members that have been pushing for interest rates to be raised from their current low of 0.5 per cent, however the trio have been outvoted to this point.
He said: “I can accept an argument that says because growth in the economy is fragile, we’re only just coming out of recession, we should be very careful with interest rate increases.
“But what I find difficult to see is a Monetary Policy Committee not responding at all when inflation is so much above target and the economy has turned round so far from the situation we were in a couple of years ago when we brought interest rates down to half a percent.”
Sentance said it was important not to forget that rates are at 300-year historic lows and that they should be raised gradually to reflect the economic situation.
He said: “The worry I have is that if that doesn’t happen, we will face a situation where interest rates must move much more sharply - and there’ll be a bigger threat to growth in the future.”
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Readers' comments (4)
Anonymous | 1 Jun 2011 9:31 am
The Bof E lost it's credibility some time ago. They are masters of self profecy, generally on the glum side with the agenda of keeping funds out of the hands oif the masses"! They are like weather forecasters when it comes to stating the obvious!
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Anonymous | 1 Jun 2011 10:14 am
Sentance is spot on. Not just to head off inflation but also to avoid moral hazard (ie 90% ltv mortgages) and remunerate savers.
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Steven Farrall (Adviser Alliance) | 1 Jun 2011 11:28 am
1. Bank of England. The FT carried out an analysis of the Bank's success at forecasting and found that it has always failed. This is exactly as Austrian Economics predicts, because central planning always fails. And that applies to money just as much as it applies to anything else. The problem is the Bank's monopoly of money. The freedom to make our own money must be returned to us. Sure, we can keep an 'official' money that could be backed by assets like Gold, and into which all free money would be convertable but only at a price set by the market in order to avoid the hazard predicted by Gresham that 'bad money drives out good - if it is at the same price'. That would keep 'official' money honest.
2. Sentance is just another corporatist. He has no more credibility than the Bank. Inflation is a function of money not prices. We've had the 'inflation' under Brown, now we are getting the price rises. The solution is to let the market sort itself out and that means deflation - the destruction of the bad money made by Brown, the contraction of the money supply and a decline in prices of goods and services and wage rates. House prices (or rather land values) have to come back a lot more as well.
Sooner or later the Great Western Fiat Money Experiment is going to go very wrong indeed. Money will die, and then we are screwed.
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Exasperated Me | 1 Jun 2011 3:28 pm
Yet another "Expert" and his opinion, there must be something else he can do, something which better suits his abilities, whatever they are.
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