Andrew Sentance is the most hawkish policy-maker at the Bank of England and the only one of the nine MPC members to call for an immediate rate rise. He will soon be retiring and May 5th was the last time he exercised a vote on the Monetary Policy Committee when it was decided to keep the key Interest rate at 0.5 percent. In a speech today he put forth his belief on why a rise in interest rates was long overdue.
“A renewed downturn of the global economy, in my view, is not the most likely scenario,” he said.
He also mentioned that the weakness of the British Pound was aggravating inflationary pressures in Britain. He claims that policy makers need to be forward looking to anchor inflation expectations.
“The role of the MPC (Monetary Policy Committee) is to maintain low and stable inflation in the UK – currently defined in terms of a 2pc target for CPI inflation.
He acknowledged that this task is greatly complicated by the wide variety of ways in which global economic developments impact the UK economy and hence influence our rate of inflation. But he believes that when there is evident global inflationary pressures, coupled with a substantial decline in the exchange rate of the Pound as well as a decline in domestic growth then these are all contributing to a sustained period of above-target inflation. This he strongly states is when the time has come to act.
“As I have argued in recent months, if we do not start to raise UK interest rates gradually soon, we risk having to do so more aggressively in the future – which could create a big shock to business and consumer confidence further down the track” he said.