— Adds Further Comments On Upside Risks To Inflation

LONDON (MNI) – Bank of England Monetary Policy Committee Member
Andrew Sentance has said that he fears that monetary discipline and
confidence in the inflation target risks being eroded if emergency
monetary policy settings remain intact for too long and reiterated his
view that the BOE should begin to raise Bank Rate.

“I worry that monetary discipline and confidence in the inflation
target risks being eroded by keeping emergency settings for monetary
policy in place for too long, when the growth and inflation outlook
points in a different direction,” Sentance told an audience in Belfast.

“The longer we keep interest rates at an exceptionally low level,
the greater is the risk that Bank Rate would need to rise sharply in the
future creating a serious setback to business and consumer confidence,”
he added.

In a barb directed at more doveish MPC members, Sentance said that
the MPC needs to show that it is ‘on the case’ when it comes to meeting
its inflation-targeting mandate.

“(Gradually raising Bank Rate) should also help build confidence
that the Bank of England is ‘on the case’ in terms of its remit, taking
appropriate policy action to return inflation to target rather than
appearing to just hope for the best,” he said.

Sentance also used his speech to highlight what he sees as the
upside risks to inflation and said that the longer CPI remains above
target, the more likely it is that inflation expectations will become
deanchored.

“Continued strong global growth could generate further upside
pressure from rising energy and commodity prices. Wage growth could also
pick up more quickly as the recovery proceeds, as pay settlements recoup
some of the ground lost in the recession and employees seek compensation
for relatively high inflation,” he said.

“And the longer this period of relatively strong growth in consumer
prices continues, the greater is the risk of a more fundamental upside
shift in future expectations of inflation,” he added.

Sentance also said that monetary policy would continue to support
the UK’s nascent economic recovery, even if the MPC voted to raise Bank
Rate.

“Taken together with the monetary stimulus from Quantitative
Easing, there is still likely to be a considerable support for growth
from monetary policy even if interest rates are raised somewhat from
their current level,” he said.

-London newsroom: 4420 7862 7491; email: wwilkes@marketnews.com

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