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Lone Voice Of Sanity On Bo E Speaks Out

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BRACKNELL, England (AFX) - David Walton, the only member of the Bank of England's rate-setting Monetary Policy Committee to vote for an interest rate hike earlier this month, said
the balance of risks has shifted "a little too much to the upside on inflation for comfort"
and that justified a "small tightening" in monetary policy.
In a speech to the BoE's Central Southern Agency,
Walton listed five main reasons
why the upside risks had emerged and necessitated an immediate quarter point increase in the BoE's key repo rate to 4.75 pct.
He said a broad range of business surveys have suggested that the pace of output growth has now increased to an above-trend rate, thought to be around 0.6 pct a quarter. Exports and investment are two key growth areas, he added.
"I believe that there is a modest upside risk to the Committee's central projection for GDP growth, and hence inflation," said Walton.
Second, he saw a small upside risk to inflation stemming from a little less spare capacity in the economy currently than implied by the MPC's central projection.
"The UK economy has had to absorb a sizeable shock from higher energy prices since the end of 2003 and it is quite possible that this has depressed temporarily the growth of potential output," he said.
Walton also said upside risks emanate from commodity and import prices, a further upward shift in inflation expectations and his judgement that the stance of monetary policy is "currently somewhat accommodative".
The latter, he said, is suggested by asset price developments, including the renewed pick up in house price inflation since last autumn, rapid broad money growth and a strengthening in the growth of nominal demand.
"For the reasons that I have already given,
I do not believe that an accommodative policy stance is appropriate at the current time,"
he said.
Walton conceded that there are other risks that could cause growth to disappoint and CPI inflation to undershoot the BoE's 2.0 pct target.
"For me, in weighing these various arguments, the balance of risks has shifted a little too much to the upside on inflation for comfort, and that, I believe, justifies a small tightening in monetary policy," said Walton.

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His reasoning seems to be right on the target. I am surprised that there is no mention of the bigger picture and IR increasing worldwide.

Perhaps Mervyn will lean toward a more hawkish stance in view of his comments on the dangerous debt levels that pervade the UK housing market.

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  • 301 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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