MPC ways flawed, claims Wadhwani

SUSHIL Wadhwani today took a side-swipe at his colleagues on the Bank of England's monetary policy committee by criticising their forecasting methods for being fundamentally flawed. Wadhwani, who steps down from the MPC at the end of May, said interest rates had been set too high over the past five years. He also said that the Bank could do more to cool the housing market boom.

In a speech to the National Institute of Economic and Social Research, Wadhwani said the MPC's failure to recognise that unemployment could fall to a lower level without stoking inflation meant monetary policy had been too tight.

Lowering rates by a quarter of a percentage point over the past five years would have delivered the 2.5% inflation target, boosted growth and ensured a more stable path for both inflation and output, he said.

He also challenged the MPC's assertion in Wednesday's Inflation Report that Gordon Brown's Budget will mean stronger growth and higher prices.

On the housing market, he said: 'I believe that a clear signal from monetary policymakers that they would react to a housing market bubble if one clearly emerged would make the continuance of strong house price growth less likely now.'