— Former MPC Members Speak At Fathom Event In London
— Ex-MPC Member Lomax Calls For Reprofiling Of Cuts
— Ex-MPC Gieve Warns On Inflation

LONDON (MNI) – Chancellor of the Exchequer George Osborne should
look at changing his planned fiscal consolidation plans as front-loading
cuts makes “absolutely no economic sense”, former Bank of England Deputy
Governor Rachel Lomax said at a Fathom Monetary Policy Forum event.

Another former BOE deputy governor speaking at the event, John
Gieve, said he expected no change in the Monetary Policy Committee’s
voting pattern in May, with three members set to back a hike and six
opting for no change in Bank Rate.

Concerns over the impact of fiscal tightening and weak activity
data have pushed back expectations for the first BOE rate hike, with
analysts’ consensus view that there will be no move in May and markets
not fully pricing in a hike until December.

The consultancy group Fathom has downgraded its forecast for UK
growth for the next two years, warning that it expected growth to be
“way below” 2% in 2011 and under 2% in 2012, according to a report
accompanying their Monetary Policy Forum event.

Fathom also said that the UK consumer is in technical recession and
said that manufacturing continues to perform poorly despite past drops
in the value of the pound.

Fathom said the UK recovery is weak and is unlikely to pick up much
in the short-term.

It said “interest rates will eventually have to rise, but the later
and the weaker that rise the better for the UK’s over-burdened consumer
and ultimately growth.”

The two former Bank of England Deputy governors spoke in a debate
after the presentation of Fathom’s prognosis for the UK economy.

“I would be telling George Osborne to look for opportunities to
reprofile fiscal austerity over the next few years,” Lomax said.

“Things that go easier in the short-run in exchange for possibly
tighter policy in the medium to long-term. There are opportunities all
the time. We’re fighting a war (Libya intervention) that we didn’t know
about a year ago. It wouldn’t be unreasonable to spending a little bit
more on defence,” she said.

Lomax said that the UK had fiscal headroom to adjust its
consolidation plan and labelled talk of the threat of a default “arrant
nonsense”.

“It’s fast by past standards, it’s very frontloaded, it makes a lot
of sense to do it frontloaded for political reasons (but)it makes no
sense for economic reasons to go hard in the first year,” she added.

Gieve said that he expected the minutes of the May MPC meeting to
show the same voting patterns as last month.

“I think the Q1 (GDP) figures won’t change many minds… Clearly
0.5% was a disappointing figures. I was with the three people who voted
for an increase last month, we’re in a benign world environment,” he
said.

Gieve, who was on the MPC from 2006 to 2009, said that the UK did
have an inflation problem and warned that waiting for inflation
expectations to shift was a risky policy.

“Service price inflation has remained at 4%. I think there is an
inflation problem here in the UK,” he said.

“I think if you wait for expectations to change you take a risk
with future inflation,” he added.

–London Bureau; Tel: +442078627492; email: ukeditorial@marketnews.com

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