MPC committee member Adam Posen has slammed the Bank for International Settlements for its comments over the UK’s soft interest rate policy.
In its annual report yesterday, BIS said that the era of near-zero interest rates needs to end, and highlighted the UK for particular criticism, pointing to inflation being above the 2 per cent target since December 2009 and questioning how the MPC could sustain that policy.
Posen has labelled those comments as “nonsense” stating that the chances of stagflation in the UK were low and that BIS had made a poor comparison between now and the 1970s, when central banks left rates low for too long and resulted in high inflation.
Speaking at Aberdeen University, Posen said that underlying dynamic today is similar to that of the 1930s. He said that in the 1970s there were “unanchored inflation expectations”, “wage price spirals” an energy shock and “an unrecognised decline in trend productivity growth”. He said that at present only oil seemed to be in the same situation on this occasion.
He said: “BIS said all central banks should raise rates, and pointed to the UK’s above-target inflation – nonsense.
“In the UK and the west more broadly, there is little or no growth, little wage growth beyond productivity, little evidence of rising inflation expectation, and oil prices are not yet a one-way bet.”