By Nicholas Winning
David Blanchflower, a consistently dovish former member of the Bank of England’s Monetary Policy Committee, or MPC, says the rate-setting body missed the U.K. recession entirely and should be disbanded.
“It is now my view that the MPC’s days are numbered, certainly in terms of its remit and probably its membership,” he wrote in a column published in current affairs magazine the New Statesman Tuesday. “After the [general] election we are going to have to reconsider who sets monetary policy.”
Blanchflower said inflation targeting didn’t protect the U.K. from the greatest economic shock of our lifetimes. The MPC’s focus on the consumer price index as a measure of inflation also excluded the major variable that was increasing a lot – house prices, he said.
“The MPC missed the recession entirely,” he said. “The recession was much deeper because of their failure to act. The MPC was asleep at the wheel. Its inability to communicate adequately what quantitative easing is supposed to do suggests it has learned little.”
Blanchflower said targeting CPI alone no longer has credibility. The U.K. should have a system closer to the U.S. Federal Reserve’s broader remit which takes into account employment, stable prices, and moderate long-term interest rates, he said. “The last thing we need is for interest rates to rise any time soon,” Blanchflower said. “Inflation is going to jump in the short term because of the VAT increase, but will then fall back sharply.”
Official data released Tuesday showed the U.K.’s annual inflation rate, as measured by the consumer price index, posted its largest jump on record to 2.9% in December from 1.9% in November due to a cut in value-added tax, a drop in oil prices, and pre-Christmas discounting in stores in the final month of 2008.
Blanchflower is no stranger to MPC or BOE criticism. In December, he accused Governor Mervyn King of keeping vital information from him at the height of the financial crisis, in the aftermath of the collapse of Lehman Brothers. Earlier, he said and the three other external members of the MPC werent kept in the loop during the crisis. We were not told what was happening to British banks such as Northern Rock, Royal Bank of Scotland, Lloyds, Bradford & Bingley or Alliance & Leicester. Or to U.S. banks such as Lehman Brothers or Bear Stearns.”