In a speech this evening, Andrew Sentance, an external member of the Monetary Policy Committee, has aligned his rhetoric with the Bank of England’s buoyant forecast. Unlike the governor, who presented a bullish forecast while sounding gloomy, he is optimistic. This is a very welcome development. The Bank was stretching its depleted credibility to the limit in persisting with forecasting a strong recovery while saying the opposite.
On monetary policy he is clearly becoming a hawk on the committee, saying “As the recovery develops there will also come a point where we need to tighten monetary policy”. His evidence for the recovery having already started is the following.He says economic surveys suggest the recession is over. As a former CBI chief economist he likes its Industrial Trends Survey. “The latest CBI Industrial Trends Survey in October are actually more positive than at the equivalent stage of the cycle in the previous three recessions”.He is encouraged by the recovery in the world economy, noting, “As a major trading nation, economic conditions here in the UK are strongly influenced by the performance of other parts of the world economy”.He is pleased with signs that consumer sentiment has improved.And the rise in employment in the third quarter, he says “is consistent with a wide range of survey indicators which are also pointing to an improvement in employment prospects
For these reasons, he dismisses the third quarter GDP figures, saying, “I would not take a negative signal from the decline recorded in the third quarter – which may change anyway as the result of data revisions”.