In a speech he gave on Thursday in London, Andrew Sentance, a member of the Monetary Policy Committee of the Bank of England (BOE), called for a raise in interest rates now to forestall having to act in a more dramatic manner later. His comments come as the divide widens among policy setters on how to handle inflation and growth.
In a Bloomberg report, Sentance, who advocated a half-percent interest rate hike this month, cited a number of reasons for his views. U.K. inflation continues to linger above the 2% target set by the bank. Companies are passing along increasing costs to customers as demand in Britain rises and there is global pressure on pricing.
In his speech, titled “Ten Good Reasons to Tighten,” Sentance said of interest rates, “We should increase them gradually and slowly if we can. But the risk of delaying interest rate rises too long is that this gradual approach may cease to be an option in the future.”
While two other members of the committee voted with Sentance to raise rates at the last meeting, they had only advocated an increase of a quarter percent. The other six members voted to maintain rates at their present level, a record low of 0.5%.
In his speech, Sentance said, “If we could be confident that global inflationary pressures would quickly subside, then we might be more comfortable about not adjusting policy in response.” He went on to add, “But we cannot be confident that the current drivers of global inflation will quickly fall back. The upward pressure on global energy and commodity prices shows little sign of abating.”
Adam Posen, another committee member, has voiced his disagreement with Sentance’s position. On Feb. 22 he was reported to say that the bank must “not be tyrannized by popular fears.” This month he voted to increase the bank’s 200 billion pound ($275.716 billion) bond purchase program by 50 billion pounds. Posen says he does not see inflation pressure in the U.K. because growth in wages will be “very low over the next couple of years.”