New MPC member 'openminded' on rates

David Blanchflower, the newly appointed member to the Bank of England's policy-making body, expressed surprise today at the minimal impact of oil prices on inflation.

The US economist, who was answering questions before the Commons Treasury select committee, said he had expected high oil prices - currently around $70 a barrel - to have somewhat larger effects on both prices and unemployment.

But he said central banks had to take care in monitoring so-called second round effects - the impact on wage claims as employees seek to make up for higher energy and petrol bills.

"The concern would be if there were to be a significant further increase in oil prices which drove up inflation and inflationary expectations and had major effects on employment and unemployment," Professor Blanchflower told MPs at a hearing on his appointment to the Bank's monetary policy committee (MPC).

Prof Blanchflower's views on oil prices very much echoed those of the Bank's governor, Mervyn King, placing him in the wait-and-see camp of the MPC.

The MPC has voted to keep rates unchanged at 4.5% for nine months running, although it was split three ways at its May meeting. Six voted to hold rates. One - Stephen Nickell, who Prof Blanchflower will replace voted for a cut - and one, David Walton, voted for a rise.

Prof Blanchflower predictably refused to be drawn as to whether he was a "hawk" or a "dove".

"I certainly haven't labelled myself and I don't think anyone could label me in any way," he said. "We need to focus on inflation. We have a 2% target for inflation."

Asked which way he would have voted in May, he said: "At this point I don't think I could say where I go. I'm a particularly strong data reader. And I think it's a judgment call. So I think you need to look at the data. I saw some of it. I'm going to keep an open mind on it and you could see arguments in all directions."

The decision by Gordon Brown, the chancellor, to appoint a US-based economist has sparked much grumbling on the MPC . Prof Blanchflower will remain in the US and commute to the UK.

Asked how he would reconcile his outside activities with his MPC work, he provided no direct answer in his written response to MPs' questions.

But he said he would continue to give lectures to students as well as his consulting work in areas he has worked in, including public sector wage setting and goal setting for programmes in public sector purchasing.

The 54-year-old Prof Blanchflower has dual US-British nationality. A prolific writer specialising in the labour market, he has also written extensively about the "economics of happiness".