'Lone dove Danny' quits the MPC

Controversial Monetary Policy Commitee member and Dartmouth professor Danny Blanchflower is leaving the Bank of England, according to The Times: Man who wanted early rate cuts David Blanchflower steps down from MPC

Professor Blanchflower, who has voted to cut interest rates every month since October last year, said that he would not seek reappointment when his three-year term ends on May 31.

Once can hardly blame him. Despite being one of the first to call the economic slowdown, global recession, downside risks to inflation and upside risks to unempoyment, he has routinely been derided by City economists and market commentators - and ignored by his fellow MPC members.

His doveish voting record often put him at loggerheads with members of the committee, who refused to cut rates earlier over fears about rising inflation. Professor Blanchflower, who travelled to rate meetings from his home in the United States, maintained that the sharp economic downturn in America could be replicated here and advocated taking evasive action by cutting rates.

'Lone dove' Danny has been proven right. The rest of the MPC stubbornly refused to acknowledge the growing downside risks to UK inflation from the global credit crunch and economic downturn.

A key lesson from this is the importance to bring a global (or US0 perspective to monetary policy. In a globalised world, what happens in the United States economy and financial markets clearly has major implicatiosn for the UK. While in theory British-based MPc members ought to be aware of these developments and factor them into their thinking, danny's example shows that they don't.

It is clearly time to globalise the Monetary Policy Commitee and move away from a parochial 'little England' approach. Let's see if Treasury have learned the lesson, and appoint another US-based member as Danny's replacement.

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Under the Bank of England Act 1998 the Bank's Governor must write an open letter of explanation to the Chancellor if inflation exceeds the target by more than one percentage point in either direction. On April 16, 2007, Mervyn King, wrote the first such open letter in the life of the MPC to Gordon Brown, explaining why the inflation reached 3.1 %, one point beyond the target 2 %.

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