LONDON (MNI) – Bank of England Governor Mervyn King and Monetary
Policy Committee member Adam Posen have today made public their
differences over the governor’s effective endorsement of an accelerated
fiscal tightening programme.

With both appearing at the Treasury Select Commmittee, Posen
revealed that he and at least one other MPC member had been unhappy with
what appeared to be an endorsement of accelerated fiscal tightening back
in May. The subject was a hot political topic at the time.

Posen sought to make clear he was not the source of a recent
Financial Times report on the issue, but said the differences of view
were real.

“There was a difference of opinion at the MPC at the May meeting
over a particular paragraph in the (Inflation) Report which was talking
about the need for a particular speed with which to deal with the fiscal
policy,” Posen said.

“A number of people on the committee, myself plus at least one
other … more than just me but fewer than the majority, were concerned
that that statement could be seen as excessively political in the
context of the Election,” Posen said.

“We expressed that point of view, we offered alternative language,”
Posen added.

After the election, King gave his explicit approval to the
accelerated fiscal tightening plans of the Conservative/Liberal
coalition government.

Sentance made clear that he was not one of those who supported
Posen in his concerns about fiscal tightening.

“Some of the comments in the media on fiscal tightening, have
been, in my view, slightly overstating the intensity of it… as a
percentage of GDP it’s broadly similar to what we saw in the 1990s”.

Loose monetary policy as well as a strong global economy would help
offset the impact of the fiscal policy tightening, Sentance said:

“It’s not just monetary policy that acts as an offset here, we
already have, in my view, quite a loose policy with very low interest
rates, and a very large injection of QE, but also the growth of the
global economy and the support it provides”.

BOE Deputy Governor Paul Tucker said he did not think a “line was
crossed” by King in approving the fiscal plan.

“The circumstances in which this debate this took place were the
most extraordinarily precarious position in the financial markets, the
chain reaction which we can still see playing out, where this country
needs to put itself beyond harm’s way. I think we would have said those
things to any government of any complexion, of any combination in those
circumstances. It was an absolutely legitimate thing for the governor
to do”.

“You cannot operate monetary policy in any sensible way without a
framework of underlying stability that comes from government and
parliament as well as from our mandate”.

–London Bureau; tel: +442078627492;email: ukeditorial@marketnews.com

[TOPICS: MT$$$$,M$$BE$,M$B$$$]