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Bank set to struggle with inflation, says former MPC member

Andrew Sentance
Andrew Sentance

The Bank of England’s reluctance to lift interest rates makes it unlikely that the official inflation target will be met for some time to come, according to a former Monetary Policy Committee member.

In an interview with Reuters Insider television, Andrew Sentance concedes the country needs to have “relatively” loose monetary policy but claims it no longer needs to be as loose as at the height of the crisis.

“I think the MPC over a period of time will struggle to keep inflation at target. It will be above target and that will be a problem over the medium term,” he says.

Inflation as measured by the consumer prices index currently stands at 4.4 per cent, compared with the Bank’s official target of 2 per cent. In addition, the body has previously suggested inflation may go as high as 5 per cent during 2011.

Sentance, whose term with the MPC expired in May, adds that his hawkish stance has not changed since he left the committee and suggests that the Bank is damaging its credibility by keeping policy too loose.

“If we continue in this fire-fighting mode that in itself will undermine confidence,” he tells the broadcaster.

Sentance also cast doubt on the ability of a second bout of quantitative easing to spur the economy to further growth, saying the move would be unlikely to give businesses the confidence to increase investment.

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  1. Scrap the target then!

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