* UK appoints Goldman Sachs economist as rate-setter
* Broadbent succeeds hawk Sentance from June 1
* Broadbent predicted May rate hike, 2.25 pct by end of 2012
(Adds further economist reaction, Broadbent quotes)
By David Milliken
LONDON, March 7 Britain's government has picked
a Goldman Sachs economist who favours tighter monetary policy to
replace arch-hawk Andrew Sentance at the Bank of England, likely
preserving the existing balance on the BoE's policymaking board.
Finance minister George Osborne named the U.S. investment
bank's UK economist Ben Broadbent on Monday to succeed Sentance
when he steps down from the BoE's Monetary Policy Committee at
the end of May.
The MPC is currently split 6-3 against raising rates, but
markets believe it is odds-on to raise rates in May from a
record low of 0.5 percent.
Broadbent, a former BoE and Treasury economist who has
worked at Goldman Sachs since 2000, will serve a renewable
His research at Goldman suggests he is upbeat about UK
growth for 2011, and in a research note published on Sunday he
said that recent private-sector activity surveys put the BoE "on
the cusp of rate-hike territory".
Goldman Sachs has pencilled in three quarter-point rate
rises for this year and a further four for 2012, making their
forecasts slightly higher than the consensus in a Reuters poll.
While economists' forecasts of the most likely path for
central bank rates do not always match their personal views of
appropriate policy, they appear to overlap in Broadbent's case.
"In short, it looks as if rates should rise sooner than (BoE
Governor) Mr King would like," he wrote in an opinion piece for
the Financial Times on Feb. 9.
Economists familiar with Broadbent's work said that he was
at the more hawkish end of the policy spectrum.
"While he's probably nowhere near as hawkish as Sentance,
he'll be on that end of the MPC," said Nomura economist Philip
Sentance voted for a 50 basis point increase in interest
rates last month, and was a lone voice calling for higher rates
throughout the second half of 2010.
Rush said Broadbent had appeared surprised at the slow pace
of BoE rate tightening in the past, and expected him to vote for
an August rate rise, assuming the bank had already started to
tighten policy in May.
Goldman Sachs's UK economists, led by Broadbent, were at the
extreme hawkish edge of the range of regular forecasters in
Reuters' Bank of England interest rate polls for much of 2010.
In January 2010, Goldman predicted rates would rise to 1.5
percent by the end of the second quarter of last year, and 2.5
percent going into 2011 -- hugely out of step with the consensus
and, as it turned out, reality.
Broadbent has described the large 0.6 percent contraction in
the British economy at the end of 2010 as a "weather-related
blip", arguing that official data overstates the depth of the
downturn. He has played down the likely impact of fiscal
tightening on UK growth, given the export opportunities offered
by a strong global economy.
More recently, 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.
A rate increase purely to bolster the BoE's credibility
would be premature, as bond markets are relatively stable, and
policymakers should not overstate their ability to tackle real
shocks facing the British economy, he added.
Equally, the impact of higher interest rates on indebted
households would be relatively modest compared to the effect of
tax rises and energy costs, and this should not be an argument
against tightening rates, he said.
HARD TO PREDICT
Simon Hayes, an economist at Barclays Capital, said that it
was notoriously difficult to predict how an economist would
behave once he was on the MPC. Sentance was expected to be a
policy dove -- supporting relatively lower interest rates --
given his background as a business economist.
"However, from what we know of Mr Broadbent, although he may
not be as hawkish as Mr Sentance he seems likely to be towards
that end of the MPC spectrum," he said.
Broadbent studied at the University of Cambridge and Harvard
University, where he gained a PhD, and also worked as an
assistant professor at Columbia University.
"His broad professional experience in the financial sector
and academia, as well as his detailed knowledge of the UK
economy, will be extremely valuable to the Committee," Osborne
said in a statement.
Britain's finance ministry said that 26 men and one woman
applied to replace Sentance after the position was advertised in
January. Applicants were interviewed by two senior Treasury
officials and former MPC member Kate Barker.
(Additional reporting by Christina Fincher, Matt Falloon, Fiona
Shaikh and Andy Bruce; editing by Patrick Graham)