'Inflation risks remain' - MPC man

THE surprise drop in the CPI last month to below the Government's 2% target will not put an end to Bank of England fears over inflation, a member of the bank's interest rate-setting Monetary Policy Committee said during a visit to Suffolk yesterday.

THE surprise drop in the CPI last month to below the Government's 2% target will not put an end to Bank of England fears over inflation, a member of the bank's interest rate-setting Monetary Policy Committee said during a visit to Suffolk yesterday.

Speaking to the EADT during a tour of business in Ipswich, Woodbridge and Stowmarket to “take the temperature” of the local economy, Andrew Sentance said a number of inflationary pressures could still work to push prices higher in the next two to three years.

Dr Sentance, who was appointed as one of four independents on the nine-strong MPC last year, has emerged as one of the committee's most hawkish members, having voted in favour of an increase in interest rates at eight of his first 10 meetings.

MPC members undertake regular regional tours to keep in touch with the business sector and yesterday's trip - during which he also briefed members of Suffolk Chamber of Commerce on how the Bank of England sees the outlook for inflation and interest rates - was Dr Sentance's first “official” visit to the East of England, although he lives in Essex.


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“I am getting around as many regions as I can in my first year on the MPC and my impression is that there are not massive differences around the country,” he said.

“Business generally has been doing reasonably well, and manufacturing is benefiting from the state of the global economy, but the more consumer-related businesses are, understandably, getting more nervous about what the impact of rate rises might be.”

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Dr Sentance conceded that last month's inflation figure was lower than most people were expecting but said it was “broadly consistent” with the Bank of England's forecast which had envisaged inflation coming back on track during 2007.

“From a short-term point of view it is encouraging,” he said, “but clearly there are still medium term issues about levels of demand. No one monthly figure in particular is going to have that great on impact.”

The continuing pressures on inflation included the strength of demand and the global economy generally, together with the prices of energy and commodities, said Dr Sentance. On the other side, there was the slowing of UK demand which was clearly now taking place and the question was how these factors would balance out.

He added that the turmoil on financial markets in the past week would have little impact on the MPC's deliberations as it was too soon to judge whether it was another example of short-term volatility, as it was in March, or whether “something more fundamental” was going on.

Alongside his role on the MPC, Dr Sentance is also a part-time professor at the University of Warwick, based at the Centre for the Study of Globalisation and Regionalisation, and a member of the Commission for Integrated Transport, which provides advice to the Government on transport policy issues.

Before joining the Bank of England, he was chief economist and head of environmental affairs at British Airways, which he joined in 1998 having previously been director of the Centre for Economic Forecasting at the London Business School.

He other previous positions include head of economic policy and director of economic affairs at the Confederation of British Industry and he was a founder member of the Treasury's Panel of Independent Forecasters, established in 1992 to provide advice to the Chancellor of the Exchequer.

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