Tim Besley, the Bank of England Monetary Policy Committee member who voted unsuccessfully to raise UK base rates as recently as August, cut an unrepentant figure yesterday as he argued that the tumble in global commodity prices since the summer had triggered the slashing of benchmark borrowing costs since October.
Tim Besley, the Bank of England Monetary Policy Committee member who voted unsuccessfully to raise UK base rates as recently as August, cut an unrepentant figure yesterday as he argued that the tumble in global commodity prices since the summer had triggered the slashing of benchmark borrowing costs since October.
Besley was continuing to vote for a rise in benchmark interest rates while the UK economy was, as official data have shown since, heading into recession. UK gross domestic product fell by 0.5% during the three months to September 30.
His MPC colleague David Blanchflower was warning simultaneously that base rates must be cut swiftly.
On October 8, only about two months after Besley's last vote for a rate rise, the nine-strong MPC cut UK base rates by a half-point to 4.5% in co-ordinated action with other major central banks around the globe.
On November 6, the MPC slashed base rates by a further one-and-a-half percentage points to 3%.
Giving the 2008 Royal Economic Society Public Lecture at the Royal Institution in London yesterday, Besley said: "Since August 2007, the MPC has been dealing with the fall-out of the credit crunch. At the same time, there has been a remarkable degree of volatility in global energy and commodity markets. Increases in these prices drove CPI (consumer prices index) inflation above the 2% target this year and inflation was at 5.2% in September - the highest level for more than 10 years. The threat of persistent inflation led the MPC to be reluctant to cut Bank Rate before clear evidence that inflationary forces were moderating "Since the summer, how-ever, the outlook for global commodity prices has changed rapidly. For example, the oil futures curve, which was used in the August inflation report projections, suggested that oil would remain at $120 per barrel for the remainder of the year. The current oil price is now below $55 per barrel. These global price developments, assuming that they are sustained, mean that inflation is likely to fall below (the 2%) target next year, notwithstanding the upward pressure on inflation from the continued fall in the value of the pound."
Besley said the challenges the MPC faces "remain daunting". He highlighted the importance of "making sure that fiscal and monetary policy work together coherently to meet economic challenges".
Besley claimed "labels like hawk and dove" for MPC members "constitute a distrac- tion from what really matters".
Not surprisingly, given his voting record, Besley has been labelled a "hawk".
