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Bank Of England Risks Losing Credibility Over Inflation Worries, Warns Andrew Sentance

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http://www.telegraph.co.uk/finance/economics/interestrates/8062648/Bank-of-England-risks-losing-credibility-over-inflation-worries-warns-Andrew-Sentance.html

Mr Sentance, an external member of the Bank's Monetary Policy Committee (MPC), has repeatedly voted for the base rate to be raised, but has been overruled by his other committee members who want to keep it at the current record low of 0.5pc.

Maintaining such a low rate could damage confidence in the Bank's ability to steer the economy and lead to "self-fulfilling" expectations of above target inflation, he argued in a speech in London on Wednesday.

In recent years monetary policy and the MPC's actions have created confidence that stable inflation will be maintained, he said.

"But it is important that this confidence is not eroded by a perception that the MPC has taken its eye off the ball and is becoming more tolerant of higher inflation," he warned. "Unfortunately, the risk of such a loss of confidence and credibility appears to be increasing."

The MPC's mandate makes it clear the best contribution it can make to economic growth is via stable prices, specified in terms of a 2pc target for CPI inflation, Mr Sentance said.

However, latest inflation figures this week showed that inflation remained at 3.1pc in September, exceeding the Government's 3pc limit for a seventh month.

"The current period of above-target inflation risks being prolonged by monetary policy which is too lax – creating a climate in which higher inflation is not just the product of one-off shocks but becomes more deeply ingrained," Mr Sentance said.

His comments will reinforce speculation as to the likelihood of a three-way split emerging within the MPC when the minutes of their October meeting are published later this month.

Wow a loss of confidence in the BoE fighting inflation. I mean that just wouldn't happen would it. Mystic Merv has done an excellent job of managing inflation.

Just don't mention the actual inflation rate or fan charts please.

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"BoE at risk of losing credibility". I ask you :lol:

They have no credibility left to lose. Not only have they lost credibility and confidence but they've also lost trust.

They and their buddies can't even make up their minds whether it's best to save or best to spend and as for their inflation targeting that's no better than a bad joke.

When it came to the crunch on inflation and when the cards were down they've just lacked the wherewithal. Fair weather bankers.

The BoE's whole system and whole approach is a complete shambles from top to bottom.

Edited by billybong

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"BoE at risk of losing credibility". I ask you :lol:

They have no credibility left to lose. Not only have they lost credibility and confidence but they've also lost trust.

They and their buddies can't even make up their minds whether it's best to save or best to spend and as for their inflation targeting that's no better than a bad joke.

When it came to the crunch on inflation and when the cards were down they've just lacked the wherewithal. Fair weather bankers.

The BoE's whole system and whole approach is a complete shambles from top to bottom.

I say old boy, bravo!

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Similiar article, but Bloomberg headlines it from a housing point of view.

http://www.bloomberg.com/news/2010-10-13/sentance-says-bank-of-england-faces-increasing-risk-of-credibility-loss.html

Sentance Says U.K. House-Price Drop a Sign of Volatility

Bank of England policy maker Andrew Sentance said the record drop shown in the Halifax house-price gauge last month may show “volatility” instead of heralding a renewed property-market slump.

“For the time being I would regard that move in house prices you saw in the Halifax index, which wasn’t replicated in the Nationwide house-price index, as an indicator of volatility in the market rather than the start of a pronounced downward trend,” Sentance said in response to questions after a speech in London late yesterday.

The 3.6 percent price drop in September shown by Halifax, a division of Lloyds Banking Group Plc, contrasted with a 0.1 percent increase reported by Nationwide Building Society. While Sentance has argued since June that the economy is strong enough to withstand higher interest rates, his colleague Adam Posen said last month that it requires more stimulus.

“We’re bound to go through periods where there are periods of uncertainty,” Sentance said.

In his speech, Sentance reiterated his call for higher interest rates, saying that the longer the Bank of England keeps it benchmark rate at a record low, the more it puts its credibility at risk.

“It is important” that “confidence is not eroded by a perception that the Monetary Policy Committee has taken its eye off the ball and is becoming more tolerant of higher inflation,” Sentance said. “Unfortunately, the risk of such a loss of confidence and credibility appears to be increasing.”

3% Limit

Inflation held at 3.1 percent in September, exceeding the government’s 3 percent limit for a seventh month and above the central bank’s 2 percent goal.

“The current period of above-target inflation risks being prolonged by monetary policy which is too lax -- creating a climate in which higher inflation is not just the product of one-off shocks but becomes more deeply ingrained,” Sentance said.

Sentance’s view is also at odds with that of Deputy Governor Paul Tucker, who said in an interview with the Daily Mail that he is “more balanced” about inflation and the need to remove stimulus than he expected to be since the economy showed some signs of weakening. Until recently, Tucker regarded inflation as being “uncomfortably high,” the newspaper said.

He also said it isn’t “terribly surprising” that house price have “softened a bit. A few months ago it was surprising that they hadn’t fallen more than they did.”

Three-Way Split

The central bank this month kept its benchmark interest rate at a record low of 0.5 percent and held its emergency bond purchase at 200 billion pounds ($317 billion) ahead of the government’s planned spending cuts to reduce the budget deficit. Minutes of that decision will be published on Oct. 20.

Sentance “has so far failed to persuade any other MPC member to join him in voting for tighter policy, and our sense is that Mr. Posen may have similarly been unsuccessful in attracting supporters,” said Simon Hayes, an economist at Barclays Capital in London. He expects the MPC minutes to show a “three-way split and suspect this pattern may be evident for some time.”

Sentance said while the budget squeeze will have an impact on domestic demand, he sees “grounds for encouragement” in the pace of the recover so far.

“The improvement we have seen in the economy over the last year and the above-target inflation we have experienced point to the need to begin the process of withdrawing the very substantial level of monetary stimulus,” he said. “Such a policy should not be a threat to the recovery. In my view it is the key to sustaining the recovery.”

‘Amplified’

Sentance also said that the impact on inflation from higher commodity prices has been “amplified” by the pound’s weakness. The U.K. currency has fallen about 20 percent on a trade- weighted basis since the start of 2007.

“I believe we are likely to see continued upward pressure on inflation from global price pressures as the recovery in the world economy continues,” Sentance said.

Recent data has signaled U.K. economic growth slowed in the third quarter and policy maker David Miles said this week that officials must not tighten policy too soon and hurt an “immature” recovery. He also said asset purchases remain a “powerful tool” that “we may come to use.”

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They cant raise interest rates becuase it would make the £ rise and this is more than just inflation.

What is one of the problems we have here in the UK?

An under developed export market. Why? Partly becuase of the previous strong £ which was one of those long term constant whines from some sectors of the economy.

So we will need to sit and suffer this one out and get used to having less, its plain and simple.

The UK and much of the Western World is undergoing a massive drop in living stds in order to compete with developing countries.

The question is, will the std of living drop below the global avg living std like houseprices did in the UK during the 90's or will the UK living std drop to the Global avg and then trend it?

We are in that process but at the end of it, we will come out a much better balanced economy able to compete globally again.

Not while the fekkin Blitish Govt tax the hell out of fuel/gas etc - we won't!

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Credibility?

It's worse than that, the BoE have been following a deliberate policy of dissembling in order to pursue a policy of keeping assets high and debts affordable - all in the name of 'financial stability'.

The Bank of England has two explicit, and at times contradictory, remits - 'monetary stability' (ie. inflation targetting) and 'financial stability' (ie saving banks from their own greedy mistakes). There will have been a very Yes Minister discussion where they agreed potentially with the politicians which of these takes priority in the instances where they are in contradiction to one another.

Once they had all agreed 'financial stability' took priority, there would have been a subsequent conversation where they discussed whether this should be communicated and whether lying formed a proper policy approach in order to achieve their aims of making sure that 'inflation expectations' are anchored. (Inflation expectations is a monthly report very closely monitored by King and Bernanke at the Fed). The answer to these questions would have been 'no' and 'yes' respectively.

The Fed criticised the BoE for overdoing it, one of their wonk members on CNBC about a month ago when they were teeing up their QE2 campaign (lost the link).

Macroman:

Mervynflation

TMM's question for the BoE is "At what point do you accept you have got this wrong?". While conspiracy theories have grown that this is all part of a grand plan to inflate and reduce the real debt burden for both households and the government, TMM think it is more to do with groupthink than anything sinister. The trouble is, we have no idea at what point the BoE will finally respond... 4% CPI? For the time being, both Sterling and Gilts have to be a sell on rallies given the inflation tail risk.

http://macro-man.blogspot.com/2010/10/mervynflation.html

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If you are charged with and extremely well paid to monitor financial stability and failed to pick up on the debt bubble then you are a cretin.

If you say your prime mandate is inflation and then go ahead and ignore it (in fact do everyting to encourage it) you are liar.

If you warn of deflation and dump your pensions into inflation protected investments then you are a con merchant.

I could go on.........

Crediblity, just on the above alone - zero.

Edited by OnlyMe

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If you are charged with and extremely well paid to monitor financial stability and failed to pick up on the debt bubble then you are a cretin.

If you say your prime mandate is inflation and then go ahead and ignore it (in fact do everyting to encourage it) you are liar.

If you warn of deflation and dump your pensions into inflation protected investments then you are a con merchant.

I could go on.........

Crediblity, just on the above alone - zero.

...time for Dave or his Chancellor to change the chappie, Mervynn.... :rolleyes:

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Guest spp

They have no credibility to lose.

+1

99.9% out 18 months ago.

A shame we've got to do any kind of business with these vampires!

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inflation is good

I think this link article from ex BoE rates committee member Blanchflower reveals the not so hidden agenda......"inflation of 5% or thereabouts for a number of years" is viewed as the new target. As Blanchflower says, it's probably our only option to get out of this mess.

Edited by ingermany

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credi-what?

Now leave Merv alone, he's got another unexpected letter he needs to write.

He doesn't bother to write them anymore, just prints out a batch every few months.

Apparently he forgot to change the printer paper last time and they all came out with a silvery metal strip running down them. :lol:

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Bank Of England Risks Losing Credibility

Risks?

Risks?

In other up-to-date news, Neville Chamberlain is warned that there is a risk of war with Herr Hitler.

Now leave Merv alone, he's got another unexpected letter he needs to write.

Good job he bought that bulk load of stationary before the price went up.

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inflation is good

I think this link article from ex BoE rates committee member Blanchflower reveals the not so hidden agenda......"inflation of 5% or thereabouts for a number of years" is viewed as the new target. As Blanchflower says, it's probably our only option to get out of this mess.

by "this mess", he means the insolvency of bankers....that IS the mission he was paid for.

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  • 152 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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