In a speech today, at the University of Lancaster´s School of Management, Monetary Policy Committee (MPC) member Ben Broadbent has suggested he is cautiously optimistic about the outlook for the construction sector following the introduction of the Funding for Lending Scheme (FLS).

It is his belief that a lack of credit availability hindered construction activity, a view supported in part by the fact that the recent construction bust had not been preceeded by a boom.

Mr.Broadbent noted that although it was too early to expect to see clear signs of easing credit in the lending data as a result of the introduction of the FLS, the latest Bank of England (BoE) credit conditions survey suggested credit supply might be improving, and this should encourage a firming in residential investment.

This is Barclays Research´s take on his comments: "Mr Broadbent has previously made it clear that, in the current circumstances, his preference is for policy to be aimed at improving credit supply rather than stoking demand. He has appeared relatively enthusiastic about the FLS and voted against the last expansion of QE. We would therefore not have expected him to support more quantitative easing (QE) at next week's MPC meeting, and his comments today suggest his position is unchanged."

The central banker also argued against those who favour switching the BoE´s main mandate from inflation targetting to trying to set a level for nominal income. Likewise, he does not see any merit in arguments to the effect that inflation targetting led to an asset bubble in property, as that was the result of lax monetary conditions globally, he argues.

In his own words: "If policy had been eased even further since 2008, in order to meet a hypothetical target for nominal income, then inflation would surely have been further above its (existing) target. Ultimately, this comes down to a judgement as to whether the predictability of aggregate inflation or the predictability of aggregate nominal income is more desirable.

"As it happens, I do not subscribe to the view that the need to cut domestic debt-to-income ratios is the major constraint on domestic activity - that was the point I sought to make in a speech in March- and I therefore doubt that, even in these particular circumstances, increasing the price level would make a great deal of difference to real activity. More generally, neither can be proved absolutely superior to the other."

Of interest, in later remarks to the Lancashire Evening Post he is cited as having added. "I literally have not made up my mind and I doubt anybody else in the committee has, until they have seen everything and thought about it."

AB

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