Andrew Sentance: The challenges of the “New Global Economy” Speech by Mr Andrew Sentance, External Member of the Monetary Policy Committee of the Bank of England, at the Jersey Chamber of Commerce, St Helier, 25 May 2011. All speeches are available online at www.bankofengland.co.uk/publications/speeches. *  *  *  I would like to thank Adrian Chiu for research assistance and I am also grateful for helpful comments from other colleagues. The views expressed are my own and do not necessarily reflect those of the Bank of England or other members of the Monetary Policy Committee. It is a great pleasure to have this opportunity to speak here today at your Annual General Meeting lunch and I am extremely grateful to Ray Shead and the Jersey Chamber of Commerce for inviting me and helping to arrange this visit. For you here in Jersey, this event is a first – as I believe it is the first major speech which a member of the Bank of England Monetary Policy Committee has given in Jersey or any of the other Channel Islands. Hopefully I am blazing a trail for my MPC colleagues to follow in the future! For me, however, it marks the close of a chapter. This is my last public speech as a member of the Bank of England Monetary Policy Committee (MPC), as my term in office comes to an end this month.
Source: IMF World Economic Outlook This raises the possibility that some key commodity markets, including the market for oil, could be in a structural position of scarcity for some time yet, leading to further significant upward price movements. For example, in its recent World Economic Outlook, the IMF published an analysis suggesting that current trends in the oil market – with supply unable to keep up with strong demand – could lead to a further 200% rise in oil prices from current levels over the next 20 years.5 Of course, there is great uncertainty around such predictions. But my judgement would be that this IMF analysis is likely to be directionally correct, even if we can’t be precise about the exact timing and scale of upward price movements. This upward shift in energy and commodity prices cannot carry on indefinitely, of course. Eventually, rising prices should choke off demand – both by encouraging more efficient use of resources and possibly by squeezing growth in consuming countries. Over a period of time, high prices may also encourage investment in new sources of supply. But while we are in this phase of strong energy and commodity price growth, there is also the risk that the inflationary trend could become embedded in the rate of increase of wages and prices more generally. That is a risk that cannot be dismissed lightly, given the experience of the 1970s when this did indeed happen.