Rates unlikely to rise above 6.5%, says MPC recruit

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The Independent Online

Charles Bean, the recent recruit to the Monetary Policy Committee, yesterday struggled to avoid being pigeon-holed as either a hawk or a dove on interest rate policy, as he faced inquisition by a committee of MPs.

Charles Bean, the recent recruit to the Monetary Policy Committee, yesterday struggled to avoid being pigeon-holed as either a hawk or a dove on interest rate policy, as he faced inquisition by a committee of MPs.

Mr Bean, who was appointed chief economist of the Bank of England last month, said he believed rates would have to go up "under certain circumstances", but said the rise would not be large. However, he was challenged over his membership of a Treasury advisory panel, with one MP suggesting the Treasury was using the committees to "suss out" which economists would give the Government least trouble.

Giving evidence to the Treasury Select Committee, which holds confirmation hearings for new MPC members, Mr Bean repeated his view, given in a summer television interview, that rates might have to rise 0.5 per cent. "I would still pretty much subscribe to the view that it is possible rates would have to rise, particularly if the pound slipped back or if earnings growth accelerated," he said. "My best judgement is it's unlikely we will have to raise rates a lot more." UK rates have been at 6 per cent since February.

He struck a doveish note on the threat to inflation from the oil price, saying the increase to more than $30 a barrel might add 0.2 per cent to inflation: "Because we are a bit below the inflation target we have room to deal with accelerating inflation." He said it would only be an issue if oil were to hit $40 per barrel and stay there for a sustained period.

But, on the New Economy - the impact on the economy of improved computer technology - he sounded sceptical. He said UK data showed little evidence of the productivity boom witnessed in the United States. "The problem is whether we start moving policy on the basis that it will happen," he said. "At the end of the 1980s people thought the underlying rate of growth had picked up and policy was made on that basis and the economy over-heated." He said he was optimistic the pound would fall back against the euro, but warned the Government would have to alter its fiscal policy if the UK joined the single currency.

Some MPs warned his continued membership of the Treasury's Academic Panel risked jeopardising the perception of his independence. Labour MP Jim Cousins said: "There's a feeling that's occurring to a few of us that the Treasury might be using membership of this panel to suss out who might be reliable."

Mr Bean said: "There's no extent to which this is a proving ground," adding that he would reconsider his membership in the light of the comments.

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