LONDON (MNI) – Bank of England Monetary Policy Committee Member
Andrew Sentance said today that he is seeking only a gradual rise in
interest rates and stressed that the MPC has a tricky balancing act to
perform – keeping inflation low while maintaining the recovery.

Following a speech in Reading, Sentance told the audience that
“it’s not surprising there may be some differences of view about
exactly where we need to set monetary policy … My point is that a 0.5%
interest rate is a quite extreme setting… the UK economy is a patient
coming out of intensive care on a recovery ward and we’re looking at
adjusting what the medication might need to be”.

Sentance voted for a small rate rise at the June meeting of the
MPC, putting him at odds with the rest of the committee, all of whom
wanted to keep rates unchanged.

“My preference, in terms of this period where we are trying to
nurture private sector growth would be that over a period of time we
move interest rates back to more normal levels.

BOE policy action would depend on a number of factors:

“It depends on the resilience of private sector confidence, in
terms of business investment and consumer spending… I would want to
emphasise that no one single factor is going to drive that judgement and
what we’ve seen… there’s clearly a lot of uncertainty around”.

There is an important balancing act to be struck by MPC in terms of
keeping economy on a low inflation track and also allowing the recovery
to proceed, Sentance said.

Sentance also commented at length on current exchange rate
developments:

“We’ve seen swings in currencies that are driven by shifts in
perceptions…While I wouldn’t to make a forecast it is important to see
that move in the euro against the dollar is something that could be
supportive for the European economy, there are some big exporters in the
euro zone”.

“The fact that the euro has moved down against the dollar and other
currencies may actually be helpful for growth,” he added.

Sentance said that the BOE’s policy of quantitative easing had been
‘generally helpful’ but would need to be kept under review as the
economy recovered.

“I think QE has been generally helpful, helpful in terms
of two respects, one is I think it provided an enormous signal in terms
of confidence that the bank was willing to do more than just keep
interest rates at a very low level…having taken those actions I
think we now need to reassess against the background of recovery”.

“It’s clearly a policy we’ll need to keep under review if the
economy continues to recover”.

–London newsroom: 4420 7 862 7492; email: ukeditorial@marketnews.com

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