–Adds Detail To Previous Versions

LONDON (MNI) – Recent weak data, showing falls in house prices,
softer economic growth and falling consumer confidence, are evidence of
volatility rather than a new economic downtrend, Bank of England
Monetary Policy Committee member Andrew Sentance said in a question and
answer session Wednesday.

Sentance, who is continuing to back gradual monetary tightening,
said it was no surprise the data were volatile but denied they were the
evidence an economic downturn let alone a double dip recession.

“I am not surprised to see indicators of confidence and indeed
economic activity showing volatility. So we have to recognize that,”
Sentance said.

He argued that some of the weakness was a result of gloomy news
coverage rather than anything more fundamental.

“I think there have been particular factors operating over the
summer. There has been quite a gloomy wave of news emanating from the US
and we have also had a lot of concern being expressed about the Spending
Review,” Sentance said.

The Spending Review, due out Oct 20, will detail the government’s
spending cuts.

He said he hoped when the Spending Review was published it would
help remove the uncertainty.

“We are bound to go through periods when there is a bit more
uncertainty and I am prepared to wait and see how indicators of
confidence and activity develop,” Sentance said.

He noted that in the past confidence had declined only to
strengthen again “when it is clear the recovery is continuing.”

Sentance was asked about the significance of the record monthly
fall in the Halifax House Price Index for September – which has
resparked fears of another sharp downturn in the housing market. He
downplayed its importance.

“One of the more surprising things in the housing market was house
prices didn’t move down last year … Now coming off that rebound I am
not surprised to see some volatility in some of the housing market
indicators at the moment,” Sentance said, noting the fall had not been
replicated in other surveys.

What The Fed Does With QE Shouldn’t Be Model For UK

Sentance was asked about the likelihood of the UK going into a
double dip recession.

He said he did not believe this would happen unless there was
another global economic shock.

Sentance first broke ranks with his MPC colleagues at the June
meeting, voting for a 25 basis point hike while the other seven members
at that meeting voted for no change in policy.

He was asked about how he could advocate monetary tightening when
the US Federal Reserve was about to relaunch quantitative easing.

“I wasn’t actually talking about withdrawing quantitative easing. I
was talking about a gradual increase in rates of interest. They would
have a similar sort of impact,” Sentance said.

He denied the BOE should be influenced by what the Federal Reserve
does with policy.

“What the Fed does relating to the US may not necessarily be the
right thing for the UK economy. Just to highlight one difference between
the UK and the US at the moment. In the US headline inflation is 1.4%
and here headline inflation is 3.1%,” Sentance said.

Sentance said the gap between UK and US inflation rates “has
something to do with imported inflation” with the UK “having a higher
import share” than the US.

In his speech, Sentance said he continued to believe starting to
tighten monetary policy now was “the right policy”.

–London newsroom: 00 44 20 7862 7491;e-mail: drobinson@marketnews.com

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