Wednesday, March 9, 2011

GBP Sinks as Andrew Sentance to be Replaced on MPC by Ben Broadbent

The GBP slid in today's trading after it was announced that Ben Broadbent was appointed to the monetary policy committee (MPC) by the Treasury on Monday. Mr Broadbent will replace Andrew Sentance on the MPC, starting with the June meeting. Mr Sentance has been the most hawkish member of the MPC and has been called for and voting for a quarter point interest rate increase in the benchmark rate since last June. We saw that 2 other members have moved over to his view in the previous rate decision.

Traders are pricing in a rate hike in May.

Mr Broadbent is a private sector economist for Goldman Sachs and his views are less hawkish than that of Mr Sentance and makes the anticipated interest rate increase from the BoE less certain. Still, he has argued that there are good arguments for both sides of the debate within the MPC, and has a view that Britain is well placed to withstand the fiscal tightening that the country will go through with a damaging effect on the economy. That makes him have a pro-growth outlook for the UK.

He sees plenty of scope for British consumers to increase spending and believes the depreciation of sterling will allow the economy to recover as the public finances are repaired.

He sees the MPC perhaps a bit too worried about the health of the economy at the expense of inflation, but still, his view is not clearly as defined as that of Mr Sentance. Until we see which side of the debate he falls on, and which way he will vote, today's news was a negative for the GBP.

Here is a collection of some more of Mr Broadbent's comments and views: Recent comments from BoE MPC nominee Broadbent

Also over the weekend, we did have some rather alarming comments from BoE Governor King in which he said the seeds for another financial crisis are still there.

From the Telegraph: Britain at risk of another financial crisis, Bank of England chief warns

"When asked whether there could be a repeat of the financial crisis, Mr King says: "Yes. The problem is still there. The search for yield goes on. Imbalances are beginning to grow again." Mr King, who rarely gives interviews, suggests that the culture of short-term profits and bonuses within the banks may ultimately be responsible for the problems.

The Governor's remarks are a warning to George Osborne, the Chancellor, as a government commission considers whether to force high street banks to sell off their investment banking arms. Mr Osborne is thought to be against such a plan, but Mr King is due to ultimately become responsible for banking regulation and his views are, therefore, critical."

His comments were met with outrage and indignation by UK financial institutions, but more importantly will be the publishing of an interim report next month on whether to break up full-service banks.

View the original article here

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