New BoE Member Broadbent: What’s His Story?

At the end of this month, the Bank of England will add a new member to their Monetary Policy Committee -- Ben Broadbent. He will replacing Andrew Sentance who has voted for an interest rate hike since the beginning of the year. Sentance was the most hawkish member of the MPC, having just voted for a 50bp hike earlier this month. His departure will leave the central bank with a less hawkish bias. As a new member of the MPC that joins the BoE at a critical turning in point in monetary policy, it is important to understand as much as we can about Ben Broadbent.

· Mr.Broadbent is the chief European economist at Goldman Sachs

· Gained a first-class honors degree from the University of Cambridge

· Received his Ph.d from Harvard University, where he was a Fulbright Scholar

· Worked previously for H.M. Treasury, the Bank of England, and at Columbia University as an Assistant Professor

· Joined Goldman Sachs in 2000 as Senior European Economist; Became MD in 2006

· Mr Broadbent, who has worked for the Treasury and the Bank as well as in academia before joining Goldman in 2000, was appointed by Chancellor George Osborne after being interviewed by a panel including the Treasury’s Dave Ramsden and Tom Scholar as well as former MPC member Kate Barker. He was chosen from 27 candidates.

· Mr Broadbent will be paid £131,771 -- £101,362 in salary and £30,409 as a pension supplement. This is less than he is thought to have earned as a Goldman managing director

· He will join on June 1 and make his first decision on June 9

· Broadbent has indicated in recent notes that he would support rate rises from the current historic low of 0.5pc, but is not as committed to action as Mr Sentence

· Mr Broadbent’s research at Goldman suggests he is upbeat about UK growth for 2011

· His thoughts on Rate Predictions:

“Last week, we brought forward the first hike in our forecast from Q4 to May. We now expect one 25 basis point increase per quarter through to end-2012.”

· His thoughts on Growth Outlook:

“The composite PMI remains consistent with growth of around 3pc quarter-on-quarter annualised in private-sector non-energy output, however, and this should allay some fears that the contraction in Q4 is representative of underlying trend activity. If we also adjust for the sterling price of oil, which has risen by around £7.50 per barrel since January, the composite PMI remains on the cusp of rate-hike territory.”

· His thoughts on Wages:

“The January data suggest wage growth is less disinflationary rather than more inflationary. But the trajectory of settlements over the coming months may soon look steep enough to turn the doves on the MPC.”

· In a note published on Monday, Mr Broadbent said a May rate hike would depend on whether first-quarter growth showed the strength implied by private sector surveys and whether private sector wage settlements pick up

· Broadbent has said that whether the BoE will raise rates depends on first-quarter growth living up to the expectations of a sharp rebound and private sector wage deals picking up further

From May 17th, 2011 Testimony to the Treasury Select Committee
· He said the effect of QE on the economy was “hard to gauge”, although he said it was “hard to imagine there’s been no impact”

· Mr.Broadbent ruled out the need for more QE, and appeared to downplay the need for immediate policy tightening

· He expected inflation to fall next year, broadly along the lines of the MPC’s forecast

· He said it was important for policymakers to monitor a range of indicators of inflation expectations, but that he saw no strong evidence that expectations had become de-anchored from target

· Mr Broadbent noted three main Downside risks to the economy:

o a sudden rise in household saving

o higher commodity prices (which would squeeze real purchasing power)

o higher bank funding costs from financial market stresses

· He said it was important for policymakers to monitor a range of indicators of inflation expectations, but that he saw no strong evidence that expectations had become de-anchored from target

· Initially, Mr.Broadbent was expected to be towards the hawkish end of the committee

· However, he might not be supportive of early policy tightening according to his testimony today, in which he highlighted

o downside risks to activity

o a lack of concern about inflation expectations

o & confidence that inflation will fall back towards target

2011 british pound forecast Bank of England Ben Broadbent Kathy Lien

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