LONDON Bank of England Monetary Policy Committee member Adam
Posen has said that it would be wrong for the MPC to tighten policy
despite concerns over persistently above-target inflation influencing
expectations.
Posen said that that long-term UK inflation expectations are far
better anchored than some commentators appreciate. He said that if the
MPC tightened now it would have to reverse the move later and he would
not rule out deflation.
He cited recent Japanese mistakes in tightening too early during
its recovery from recession.
“I am arguing that it would be a similar mistake for the MPC to try
to prove its counter-inflationary toughness just for the sake of chatter
about rising inflation expectations that is not there in the data nor
likely to influence the actual inflation outcome,” he said.
“Long-term UK inflation expectations in financial markets are far
better anchored than some commentators appreciate,” Posen said.
Posen also said that he would not rule out the possibility of a
rate rise now leading to deflation.
“I am not forecasting that a tightening of policy now by the MPC
would lead to deflation in UK, though I would not rule that out,” he
said.
“While all market determined interest rates and exchange rates are
subject to sudden changes in sentiment, I believe that the MPC should
not set policy in fear of such potential changes, given the solid
longterm fundamentals of the UK economy,” he added.
“We must make policy based on the best available forecast, learning
from our past mistakes, and not be tyrannized by popular fears or
spectres of expectations,” he said.
Adam Posen first voted for a stg50 billion expansion of
Quantitative Easing in October 2010. He has been alone in voting for
more QE up until the January meeting. The minutes of the February
meeting will be published at 0930 GMT Wednesday.
–London newsroom: 4420 7 862 7492; email: ukeditorial@marketnews.com
[TOPICS: M$B$$$,M$$BE$,MABPR$,MT$$$$]
