LONDON (MNI) – Bank of England Monetary Policy Committee Member
Adam Posen has not changed his view on underlying inflation in the UK
and sees inflation falling to “well below” the central bank’s 2% target.

In a Bloomberg interview Posen argued it was not inevitable the MPC
would fulfil market expectations by hiking Bank Rate. Posen has been
alone in voting for the MPC to loosen policy and extend quantitative
easing by stg50bn at recent meetings, while markets have moved to
pricing in tightening in coming months.

In the Bloomberg interview, Posen gave no clear indication he was
backing down over his disagreements with the majority on the MPC.

“Just because the markets price in a rate increase or a rate cut at
any time doesn’t necessarily mean it will occur,” he said.

He pointed out that markets’ expectations are factored into the
BOE’s forecasts. With markets pricing in more tightening than
previously, this will put downward pressure on the BOE’s inflation
forecasts.

Posen believes inflation will, further out, fall back below the 2%
target although the latest data showed it moving up to 3.7%.

“In terms of underlying U.K. inflation, driven by domestic forces,
my position is unchanged,” Posen said, adding “Inflation will be well
below” the Bank’s 2% target.

The MPC member did, however, say that the euro area could deliver a
positive growth surprise and what had changed for him was he was
increasingly aware of the external risks to the UK.

“There could be sufficient growth in demand abroad — positive
surprises abroad, particularly in the euro area, our major trading
partner — that could influence not just demand for U.K. goods and
services, but also the exchange rate,” Posen said.

“I don’t think it’s large enough to offset the domestic factors,”he
said, but added “It’s something I’m definitely watching.”

On the domestic front, he said underlying wage growth has been
zero.

Markets will now be looking to the minutes of the MPC January
meeting, which are due to be released next Wednesday, to see if Posen
is maintaining his position that QE should be increased.

–London newsroom: 4420 7 862 7491; email: drobinson@marketnews.com

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