Broadbent changes from hawk to dove as economic weakness deepens

BEN Broadbent – recently appointed to the Bank of England’s monetary policy committee – has softened his hawkish stance on inflation because of concerns over economic weakness, he revealed in an interview yesterday.

In his first public comments since succeeding Andrew Sentance on the Bank’s nine-man rate-setting body, the former Goldman Sachs economist said the outlook for growth had weakened in recent months.“It’s clear that the outlook has softened since earlier this year, and the latest forecasts both internationally and for the domestic economy are for continued growth but at a rate lower than people expected some months ago and certainly lower than one would expect in a ‘normal’ economic recovery,” said Broadbent.

He said he had probably been on the “hawkish” side of the debate when he arrived at the Bank “I was concerned that a long period of above-target inflation might dislodge medium-term expectations of future inflation and find their way into other prices and wages,” he added. “That hasn’t happened and the outlook for growth domestically as well as globally has weakened in the last three or four months, so I would describe myself now as much more in the middle of the debate.”

Broadbent said the MPC’s assumption was that there had been a permanent loss of output in Britain and appeared to hint at a scenario in which more quantitative easing would be considered.

“If that outlook changed in a way which would lower the prospects for inflation over the medium term, maybe more could be done.”

The Bank last week inched closer to launching a second round of quantitative easing after two policymakers unexpectedly dropped their call for higher interest rates. Only long-standing dove Adam Posen called for more QE this month but other policymakers considered it.

The Bank has held rates at 0.5 per cent since March 2009 with the UK economy continuing to be squeezed between high inflation – more than double the Bank’s 2 per cent target – and low growth with many economists expecting interest rates to be kept at record lows at least until next October.