The walls of Tim Besley’s oak-panelled office at the Bank of England are adorned with an array of modern art. Dug out from a dusty corner of the Bank’s vaults, the modernity of the images is almost a token of Mr Besley’s approach to his task as one of the two “new boys” on the Bank’s rate-set-ting Monetary Policy Committee.

The economics professor emphasises that his hope is to bring to the task of steering Britain’s economy the powerful tools of modern economic analysis. “I believe in economics, I really do,” he says. “One thing that makes me cross is people who are cynical about what economics has achieved. I don’t believe any less in the importance of good economic reasoning now than I did when I walked into this room almost a year ago.”

In his ten months as the latest MPC tenant in this room, Mr Besley has voted eight times for increases in borrowing costs, while the committee has raised rates four times. In the process, he has acquired a reputation as the Bank’s hardline “überhawk”. It is a depiction he dislikes intensely. Instead, he insists that he has acted on just the sort of modern, rigorous economic reasoning that he so strongly advocates.

He believes he has been vindicated. Back in September, in his second month on the MPC, Mr Besley and Andrew Sentance, a fellow external member, were alone in voting for a rate rise. They stood out alone, again, for dearer money in February and April. Mr Besley believes events have proved him right, and says: “The commentary now is very much consistent with what we have been doing. I think in a sense the Bank has been leading.”

For all his aggressive reputation, Mr Besley is relaxed as he lays out the core case behind his hardline stance.

He argues that strong global demand has meant that there is little slack left in the economy to help to cap inflationary pressures.

At the same time, there has been “very strong growth in credit”, while companies have reacted to buoyant conditions by trying to push up prices.

“I think the thing we’ve been surprised about over the past six months is that the slowdown in the US has remained confined to the housing sector, and has not appeared to be leading to a global slowdown,” he says. “It’s clear that there isn’t a lot of spare capacity in the economy right now. Then, what we have seen is something of a change in the pricing climate in firms.

“There are a sort of variety of factors that join together and have created an upside risk [to inflation]. I think we are doing our best to deal with that now.”

Mr Besley insists that he has no preconceived notion about pressing for a further rate rise. “I think that is where one gets into dangerous territory,” he said . “It’s as if you have some hard-wired, even genetic, predisposition and I think that is an unhelpful way of thinking about the world.”

Mr Besley detects some cause for reassurance, noting signs that expectations of future inflation, a key Bank concern, “have not increased markedly . . . so I am not hugely concerned about that”, and also that “wage pressures appear relatively muted”.

Yet he emphasises: “It’s not something that you just say, ‘Ah, breathe a sigh of relief, we’re done’.”

Mr Besley has doubts over the growing City belief that consumer spending will be hit hard as more and more people come off cheap, fixed-rate mortgage deals that have until now shielded them from rate increases. He has also yet to see any signs of a slowdown in revived business investment, while he points, too, to persistently strong growth in secured borrowing by households and corporate credit.

“What does seem reasonable is that we will see some slowing in consumption growth . . . The bottom line is that there is still quite a lot of uncertainty about how much slowing in the economy we are going to see. I think we will slow, but if it doesn’t slow enough . . .” The implication is left hanging.

One of his biggest concerns, companies attempting to push up prices, remains firmly in place, despite some evidence that these pressures have eased.

“I am not tremendously more sanguine. I certainly would be happy with the proposition that things have not worsened on that front.”

As Mr Besley ponders his next move, three new factors have emerged to complicate his decisions: a surge in the pound against the dollar, a new jump in oil prices, and turbulence in financial markets sparked by a shake-out in the US sub-prime mortgage market.

The resurgence in oil prices is a “double whammy”, he says. “First of all, it will raise inflation as it comes through. Second, we will have to assess its broader implications.”

He is shy of espousing any view on sterling’s upward charge against the dollar. But he notes that “the obvious point is that this is dollar weakness, primarily”. “There is no doubt that manufacturing has become more resilient” to a strong exchange rate,” he says.

As for the US-driven market upheavals, Mr Besley believes these have led investors to reappraise financial conditions but have muddied the waters for the MPC “until we know where all this is going”.

He is clear, though, that he is ready to push rates higher if he sees this as necessary.

“When I accepted this job, I think that of all the things that were in my mind, becoming popular was not one.

“What I hope is that if, at the time, the decision looked unpopular, people will look back and say, ‘Yes, those guys did the right thing’.”

“I think we have done the right thing. We have been raising rates against a backdrop that repeatedly justifies what we have been doing.”

Rise of a high-flyer

1983-87 BA Philosophy, Politics and Economics/MPhil and DPhil in economics, Oxford University

1988-89 Visiting assistant professor of public and international affairs, Princeton

1989-95 Assistant professor of economics and international affairs, Princeton

1995-present Professor of economics and political science, London School of Economics

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