Sentance Says U.K. Recovery `Encouraging,' Needs an Interest-Rate Increase

Bank of England policy maker Andrew Sentance said the recovery in U.K. manufacturing is “encouraging” and repeated his call for a “gradual” increase in interest rates from a record low.

“What I’m in favor of is a gradual rise in interest rates which will not destabilize the recovery and disrupt business and consumer confidence,” Sentance said in an interview on BBC West Midlands radio broadcast today. While the recovery is not “uniform,” the “erratic” data are usual at this stage of the economic cycle, he said.

Sentance has campaigned since June for an interest-rate increase to tame inflation, though his calls have so far been ignored and colleague Adam Posen voted this month to expand asset purchases. Minutes of the Oct. 7 meeting show that other members of the nine-person Monetary Policy Committee are leaning toward Posen, with “some” of them finding it more likely that further stimulus “would become necessary.”

Sentance said the record low interest rate of 0.5 percent was “put in place against a very different backdrop than we are in now.” He also said an increase in rates would help to lower the inflation rate, which held above the government’s 3 percent limit for a seventh month in September.

“Now the global economy has turned around, the U.K. economy grew around 2.5 percent over the last year,” he said. “We don’t need so much stimulus.”

The recovery in manufacturing has been “encouraging” as industry benefits from a “strong” global economy and the pound’s decline, Sentance said. The recovery is “stronger in some areas than others,” he said. “It’s not a uniform recovery.”

He also said it’s “very important” that confidence is maintained and he wants to avoid a “sharp” increase in interest rates.

To contact the reporter on this story: Fergal O’Brien in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

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