LONDON (MNI) – Bank of England Monetary Policy Committee Member
David Miles said today that the time is not yet right to tighten
monetary policy as economic conditions in the UK are not yet ‘normal’.

“I look forward to the day when it will be appropriate to tighten
monetary policy since a return to more normal levels of interest rates
would be a welcome sign that economic conditions were also more normal.
But I do not think that is where we are today.”

Miles said he does not believe that the current above-target
inflation rate is sustainable, given that underlying inflation pressures
are not strong. Miles went on to say that above target inflation would
be unsustainable without a pickup in wages, which he regarded as
unlikely.

“Without a pick up in wage inflation I find it hard to think it at
all likely that inflation being significantly above target is
sustainable. Of course wage pressures may build significantly over the
next year or so, though I do not believe this is the most likely
outcome.”

Miles also said that risks of an extended period of low growth –
which would further weaken those pressures – remain “real”.

Whilst conceding that above-target inflation made setting monetary
policy difficult, Miles said he thought it essential to look beyond
“temporary and potentially transitory factors” influencing inflation
when attempting to balance the risks of inflation.

“Reacting to today’s inflation rate (which reflects where the level
of prices is now relative to 12 months ago), rather than where inflation
will be looking ahead, is not the right thing to do.”

Miles also said he believes that UK banks need higher capital
requirements in order to help stabilize the economy.

“I believe that moving capital requirements on banks is a very
useful tool to work alongside monetary policy in achieving a stable
economic environment,”

“That would have a relatively low impact on the overall cost of
debt in the economy but a big impact on the robustness of the banking
system.”

–London Bureau; Tel: +442078627492; email: wwilkes@marketnews.com

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