It is the right time to do more QE — as the MPC minutes, out last Wednesday, made clear. As usual, “Death” Sentance has no idea what he is talking about and, if we listened to what he said, it would push the economy further into the doldrums. Fortunately, both the coalition government and the Labour Party have a different view, as they should. Sentance has wrongly called practically every economic issue over the past five years; what he says has been almost perfectly negatively correlated with what has happened. Recall: he was the guy who failed to spot the recession in the first place. On 21 September 2008, a week after the collapse of Lehman Brothers, he argued in a speech to the Leicester Chamber of Commerce:
The current prospect for the UK economy is very different to the major recessions we have previously seen in the mid-1970s, early-1980s and early-1990s. In these episodes, economic activity fell sharply for one to two years. In my view, the current outlook is for a much milder period of weak economic activity, on this occasion.
It didn’t work out that way.
There are lots of other similar examples: just take a look here at his various speeches — as he became increasingly isolated on the MPC — if you want a good laugh.
So what did he have to say for himself, this time? Global forecasts are “not excessively downbeat”, was his big claim. Well, they are. In the UK today, for example, Barclays Capital lowered its forecast of UK growth for 2011 to an average of 0.2 per cent per quarter, so now it is 0.9 per cent this year and 1.5 per cent in 2012. It called for more QE — as has the British Chambers of Commerce and the Institute of Directors. The IMF, in its September 2011 World Economic Outlook, published last week, lowered its growth forecast compared with its June 2011 WEO projections, as follows:
|World Output||– 0.3||– 0.5|
|Advanced economies||– 0.6||– 0.7|
|USA||– 1.0||– 0.9|
|Euro area||– 0.4||– 0.6|
|Germany||– 0.5||– 0.7|
|France||– 0.4||– 0.5|
|Italy||– 0.4||– 1.0|
|UK||– 0.4||– 0.7|
|Canada||– 0.8||– 0.7|
|China||– 0.1||– 0.5|
|India||– 0.4||– 0.3|
|Emerging and developing economies||– 0.2||– 0.3|
|Central and eastern Europe||– 1.0||– 0.5|
I guess Death didn’t notice the projections. He went on with the same old nonsense about inflation being the big ogre, which is clearly out of place and out of time. Growth is the problem but I guess he hasn’t noticed that unemployment is rising:
In the UK, we missed the opportunity in the second half of last year to start to rein in monetary stimulus. And the US embarked on its QE2 programme. These policies have not boosted growth. Rather, they have led to relatively high inflation. More stimulus is likely to result in more of the same, while doing little if anything to support growth.
Inflation is slowing around the world, oil and commodity prices have collapsed over recent days and there is no wage pressure at all. More stimulus will result in more growth.
All of this on a day when the newest member of the MPC, Ben Broadbent, who replaced Sentance on the committee, made his first speech on the economy and in interviews afterwards made it clear that he was close to voting for a further round of QE. Broadbent also made it clear that he would do so if the data worsened, which it appears to be doing. Thank goodness George Osborne did not reappoint Sentance and replaced him with someone sensible — good one George!
Vince, Mervyn, George, Danny and now Ben all seem to be on the same page. Now is the time to do more QE. Sentance, as ever, will be — and should be — ignored. There is a considerable chance that the MPC will move at its October meeting but almost certainly will in November, when it produces its next inflation report and new forecasts.