–Adds Detail To Version Transmitted At 11:17 GMT
–Weale Recently Told MNI Doubts Inflation Expectations Key CPI Driver

LONDON (MNI) – Martin Weale, director at the National Institute of
Economic and Social Research, will replace Kate Barker on the Monetary
Policy Committee, and will start at the August meeting, the Treasury
announced Monday

Barker left at the end of May which means the MPC will still have
only eight members at the July meeting.

The NIESR has been more downbeat over UK growth prospects than the
Bank of England or the Office for Budget Responsibility.

Weale expressed skepticism last week about the view of MPC Member
Adam Posen that a rise in inflation expectations was a key factor in
higher UK inflation outturns.

He told Market News the decline in sterling was, instead, a more
likely suspect.

Weale said if the rise in inflation expectations was feeding
through to actual inflation outturns then the most likely route would be
through higher wages.

“Wage increases have been pretty modest,” he said.

If higher inflation expectations are not feeding through in wages
then the other option is they are feeding through in prices. Weale said
that while there is a hefty academic literature on sticky prices, he has
not found it particularly convincing.

Weale is skeptical of the idea of retailers raising current prices
in anticipation of further inflation down the line.

“Prices are much more flexible than wages,” he told Market News.

Asked about the likely impact of sterling on CPI Weale said it was
impossible to give a precise figure.

BOE Executive Director Markets Paul Fisher said in recent remarks
the impact of sterling’s fall on current CPI could be anywhere between
1 percentage and 2.5 percentage points.

With CPI at 3.4% in May, down from 3.7% in April, Weale said the
upper end of Fisher’s range was implausible. As value added tax is also
having a substantial up effect on inflation, this would imply there was
no inflation elsewhere, which he doubted.

–London bureau: +4420 7862 7491; email: drobinson@marketnews.com

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