–Updating First Version Of Report Transmitted To Wires 1940GMT

London, MNI – Bank of England Monetary Policy Committee member
Andrew Sentance said he recognized that fiscal tightening would act
as a drag on the UK economy but it should not be a “show stopper” for
the tightening of monetary policy.

In a question-and-answer session here Sentance said the MPC needed
to focus on the inflation outlook and getting it back to target. He
argued the emphasis should stay on a broad inflation measure and said
he was skeptical about core inflation measures, which strip out various
factors.

Sentance said what mattered for consumers was overall inflation
rather than any core measure. The MPC member again made the case for
tightening policy.

Asked about using core inflation measures, such as CPIY, Sentance
said “I am a little skeptical about this kind of approach. In the US
they take out food and energy but if you interviewed people in the
street they would probably say they are most concerned about food and
energy and we have to be very careful about the use of these measures.”

Sentance said he was not calling for a string of rate hikes, but a
gradual tightening of policy and he said the MPC should judge the pace
of tightening depending on the impact it was having on consumer and
business.

“The level of Bank Rate is exceptionally low… the lowest in the
whole 300-year history of the Bank. When it comes round to raising
interest rates the MPC will have to judge, as it always does, the impact
that the policy instrument is using on the economy… Certainly we’ll
need to judge the pace and extent of interest rate rises.”

Sentance noted that mortgage rates were running well above Bank
Rate, but he said he did not think increases in mortgage rates would
match Bank Rate when the latter began to rise.

Sentance, whose term on the MPC finishes at the end of May, has
consistently been the most hawkish of the committee members. He has been
isolated in calling for tighter monetary policy at recent meetings,
voting for a 25-basis-point rate hike at every MPC meeting since last
June.

Sentance was asked if inflation expectations had already got out of
control and if they could no longer be put back in the bag.

Sentance said he disagreed – “I think the MPC should take this
seriously. I don’t think it is too late to recover credibility.”

–London newsroom: 00 44 20 7 862 7492; email:
ukeditorial@marketnews.com

[TOPICS: M$B$$$,M$BDS$,M$$FI$,MT$$$$,M$$BE$]