Andrew Sentance promises controversy in pro.manchester speech 26th April

Plenty of good controversial material to draw on in my speech to Pro Manchester at the end of April. It will be looking back at the lessons for monetary policy from the past four to five years and I am looking forward to it.” This was my week-end message from Andrew Sentance, the first hawk on the monetary policy committee to call for an interest rate rise. Andrew will be with us on the 26th April for a members lunch at the Hilton Hotel. Join us from 12:00 until 14:30 for what promises to be a momentous event with significant repercussions for monetary policy. JKA
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pro.manchester economics review Q1 – rebalancing the economy or dans la flotte?

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The pro.manchester outlook is slightly contrarian. The review is produced on the basis that growth in the current year will be ahead of expectations at 2.6%, inflation will be around 3.6% by the end of the year but will not fall to target thereafter. Government borrowing will fall faster than the consensus forecast but there will be no improvement in the current account as outlined.
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UK inflation rises to 4% – the hawks are circling, will rates have to rise?

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Inflation CPI basis in January increased to 4%, that’s twice the level of the Bank of England target. The Governor has had to write yet another letter to the Chancellor explaining why the MPC was failing in the challenge to curb inflation. In his letter to the Chancellor, Mr King said three primary factors were behind the increase, the fall in sterling, the rise in VAT and recent increases in the prices of commodities, particularly energy. The Bank of England is running out of room and stretching credibility. Views within the MPC are polarising. The dependence on “gapology” is anachronistic. Two hawks are on the panel already but more doves will morph before too long. If the first quarter GDP figures are as strong as expected, interest rates will rise as early as April or May.
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The FTSE set to rise higher but what of interest rates in the UK ..

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Equity markets around the world have rallied from the lows of 2009 offering 60% gains for bottom feeders brave enough to take stock. The FTSE World Wide index now stands within 25% of the 2008 peak. In developing markets, the gains had been even higher, rallying from a low of 160 to around 340 according to the FTSE index, with the market now ready to test the 2007 high of 360. Markets had been supported by a strong growth in corporate earnings and a period of low interest rates. In the UK we expect above forecast growth, with inflation remaining a challenge to policy in 2011. As for base rates, the market consensus is for rates to end the year at 1.25%. If GDP growth is as high as we anticipate in the first quarter of the year, the shocking inflation figures could force the Bank of England to act earlier. Rates could begin the rise as early as April or May pushing beyond 200 basis points by year end.
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pro.manchester Brewin Dolphin calls the FTSE higher but what of interest rates…

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Equity markets around the world had rallied from the lows of 2009 offering 60% gains for bottom feeders. The Brewin Dolphin forecast for the FTSE end of 2011 is 6,450, that’s an eight per cent rise from current levels. 6,450 is a good call, with the market set to test the 6,500 high before the end of the year. As for base rates, Brewin Dolphin is calling a 50 basis point rise in two steps in the second half of the year. The market consensus is for rates to end the year at 1.25%. If GDP growth is as high as we anticipate in the first quarter of the year, the shocking inflation figures could force the Bank of England to act earlier. Rates could begin the rise as early as April or May pushing beyond 200 basis points by year end.
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Hysteresis at the Bank of England : Is it time to say Goodbye to Gapology and rethink the inflation model?

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Hysteresis refers to systems that have memory, where the effects of current stimuli to the thought process are adjusted with a certain delay in time. The Bank of England is guilty of occasional episodes of slow adjustment. It is time to consign “gapology”, along with the Philips Curve, the J curve and the nomadic NAIRU to the dustbin of economic thought.
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Hysteresis at the Bank of England : Is it time to say Goodbye to Gapology and rethink the inflation model?

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Hysteresis refers to systems that have memory, where the effects of current stimuli to the thought process are adjusted with a certain delay in time. The Bank of England is guilty of occasional episodes of slow adjustment. It is time to consign “gapology”, along with the Philips Curve, the J curve and the nomadic NAIRU to the dustbin of economic thought.
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