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Andrew Sentance: interest rates must rise

16 April 2011

10:32 AM

16 April 2011

10:32 AM

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." 

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." 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

Anyway, here is Sentance talking to Bloomberg’s Linda Yueh

PS: The below graph from the Wall St Journal looks at differing approaches to inflation and interest rates. And, below it, the UK position.

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