–BOE Bean: MPC Has Chosen To Accept Above Target Inflation

LONDON (MNI) – A key question facing the Bank of England’s Monetary
Policy Committee is whether the economic “soft patch” evident in some
recent activity data is only temporary, BOE Deputy Governor
Charles Bean said in a speech Thursday.

With inflation running well above target and growth patchy, Bean
said the MPC had chosen to accept a period of above target inflation to
help facilitate the economic rebalancing that is needed. In the speech
he highlighted the slow pace of recovery in the wake of the financial
crisis, and gave no clear indication of when he expects the first hike
in Bank Rate to come.

Bean said that stripping out the extremely volatile construction
and oil and gas extraction numbers from the recent data “we are still
left with a picture of flattish underlying activity through the end of
last year and only modest quarterly growth of just 0.5% at the beginning
of 2011.”

The official data, hit by exceptional factors, have shown no net
growth in the UK economy over the fourth quarter of last year and the
first of this, and Bean says the underlying picture is one of soft
growth.

“Other indicators, such as measures of consumer and business
confidence and the reports from our Agents around the country, also
point to a slackening in the underlying rate of expansion around the
turn of the year,” Bean said.

“The crucial question is whether this just represents a temporary
‘soft patch’ of the sort often seen during the early stages of economic
recoveries, or whether it is instead the harbinger of a prolonged period
of slow growth,” Bean said.

The MPC, on balance, expects growth to pick up, but it is going to
be a slow process.

“The underlying picture is one of growth gradually picking up to
around its historical average rate, reflecting continued recovery in
investment and a higher contribution from net exports and, on the back
of that, some modest strengthening in consumer spending as we go through
next year,” Bean said.

–London bureau: +4420 7862 7491; email: drobinson@marketnews.com

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