PRIOR warnings over spiralling inflation are “being borne out by events,” according to Bank of England rate setter Andrew Sentance, who yesterday accused his Bank colleagues of seriously understating the threat of rising prices.
Sentance’s fiercely hawkish words preceded a rise in sterling, also aided by a positive business survey for the UK’s thriving manufacturing sector.
During the day sterling traded with gains of around 0.5 per cent versus the dollar at $1.617.
In an outspoken attack, Sentance said: “I argued that delaying policy action in the second half of last year would mean bigger and sharper interest rate rises might eventually be needed to control inflation. I am afraid that this warning is being borne out by events.”
“He is really stepping up the pressure for the Bank of England to act now by coming out with all his anti-inflation guns blazing,” commented Howard Archer of IHS Global Insight.
Sentance’s comments came the day after a surprisingly and defiantly dovish launch of the Bank’s latest inflation report by Mervyn King, who had insisted that a rate rise “may be many quarters” away.
But the Bank’s latest inflation report, published this week, “is too optimistic,” Sentance responded, yesterday. “The forecast published a year ago suggested that inflation would be around one per cent in the first half of this year, whereas it has already hit four per cent and is set to move higher,” he said.
And a devalued pound is stoking the impact of global inflationary pressures on the UK, Sentance said. Nudging up rates might bring about a “modest appreciation of sterling,” protecting Britain from price pressures from abroad.
“The value of the pound needs to be one of the key areas of focus for the MPC,” Sentance said.