–BOE Rate Outlook Likely Unaffected By Broadbent MPC Appointment
LONDON (MNI) – Incoming Bank of England Monetary Policy Committee
member Ben Broadbent’s recent published views suggest he is an optimist
on UK growth, concerned about global inflationary pressures and
fairly hawkish on rates.
Broadbent, a senior Goldman Sachs economist, will sit on his first
MPC meeting in June by which time, if market pricing and the majority
of analysts are correct, the committee will have made its first rate
hike, at its May meeting.
Broadbent’s analysis has been that Bank Rate will move up at 25
basis points a quarter from Q2, ending the year at 1.25%.
As he will take over from Andrew Sentance, who has spearheaded the
drive for tighter monetary policy and backed a 50-basis-point hike at
the February MPC meeting, analysts point out Broadbent could make the
MPC marginally more doveish in net terms. He will, however, be form part
of the policy tilt towards higher rates.
As such, the outlook for official interest rates is unlikely to be
affected by this latest appointment.
Goldman Sachs’ economists most recent prediction is that the first
Bank Rate hike will come in May and Bank Rate will rise to 2.25% by the
end of next year.
Among the views that Broadbent has signed up to in Goldman’s
analysis is that the surprise 0.6% contraction in Q4 GDP in
the official data overstates the economic weakness at the tail end of
last year.
A Goldman’s note, out last week, said National Statistics’ Q4
growth data “is not only at odds with the Bank’s Agents, it also jars
with other survey data, which uniformly point to positive growth in Q4
and an acceleration in activity in January.”
“Taken together, we are confident that a combination of revisions
to GDP growth in Q4 and a material bounce in Q1 will result in average
growth across the two quarters of just over 1% qoq,” the Goldman
economists wrote.
Among other views expressed by Broadbent in an op-ed piece in the
Financial Times, and in other published research, are that Bank Rate
will likely have to rise faster than BOE Governor Mervyn King, widely
perceived to be at the doveish end of the MPC, would like and that
fiscal tightening need not weigh heavily on growth.
In the FT piece, Broadbent said, with inflation rising and growth
apparently stalling, King faced a dilemma but that the real situation is
less bad than the news headlines suggest.
He dismissed the Q4 data as a “weather-related blip” and said “it
looks as if rates should rise sooner than King would wish.”
Broadbent has also pointed out that UK fiscal tightening in the
1970s, 1980s and 1990s coincided with periods of growth and his given
broad support to the government’s fiscal tightening.
Broadbent Familiar With UK Policy-Making Circles
Broadbent, unlike current MPC dissident Adam Posen and former arch
dissident David Blanchflower, was well acquainted with UK economic
policy making before signing up to the MPC.
He worked at the Treasury and the Bank of England before joining
the MPC, and is an associate of Dave Ramsden, the top Treasury official
who sat on the panel to select Sentance’s successor.
Broadbent’s appointment also leaves the MPC as an all-male
institution. The Government said it had 27 applications for the job, of
whom only one was a woman.
When the most recent MPC appointee, Martin Weale’s, job was
advertised, there were 38 applicants and just 4 were women.
Vicky Pryce, a former joint head of the Government Economic Service
alongside Ramsden, was a hot tip to get the job but she ruled herself
out this time around, having only just moved to the private sector with
FTI Consulting.
With the government saying it “would like to see a greater number
of women apply for future appointments” Pryce could still end up on the
MPC.
Two of the current independent members, David Miles and Adam Posen,
have terms that end in 2012, in May and August respectively.
The convention is the most recently departed MPC member sits on the
interview panel – which would mean arch hawk Sentance will have a say on
the next member. Former MPC member Kate Barker sat on the panel that
appointed Broadbent.
–London newsroom 4420 7862 7491; email: drobinson@marketnews.com
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