Ex-MPC member calls for body to be disbanded

Jan 20 2010 By nebusiness

A former member of the Bank of England’s Monetary Policy Committee called today for the body, which sets interest rates, to be disbanded.

Professor David Blanchflower said the MPC was "not fit for purpose" and had made the recession deeper because of its failure to act.

And he warned that the MPC may make the recovery from recession more painful by "tightening" monetary policy - increasing rates - too early.

Prof Blanchflower also argued against calls from Bank of England Governor Mervyn King for the Government to start reducing its record deficit, warning that the greatest danger for the UK economy would be "to cut too soon".

The MPC was established in 1997 by then Chancellor Gordon Brown, and meets every month to set the base interest rate, with the target of keeping inflation within one percentage point of 2%. Since the start of the recession it has held rates at a historic low of 0.5% in a bid to stimulate the economy.

Since March last year, it has also followed a policy of "quantitative easing" - effectively printing money - to inject capital into the economy and stave off the effects of the slowdown.

But Prof Blanchflower, who served on the MPC from 2006-09 and is credited as one of the few economists to predict the recession, said today that whoever won this year’s general election would have to reconsider whether the body should retain its power to set monetary policy.

Minutes of MPC meetings show that, from early in 2007, Prof Blanchflower voted to reduce interest rates on numerous occasions when his colleagues opted to hold them steady or raise them.