LONDON (MNI) – The biggest threat at the moment is that inflation
will be too low in the medium term, and that is why the Bank of
England’s Monetary Policy Committee restarted quantitative easing, BOE
Deputy Governor Charles Bean said.

In a BBC Radio Manchester interview Bean denied the MPC has given
up on its inflation target. The headline CPI inflation measure rose to
5.2% in September, way above the MPC’s 2.0% target, but Bean expressed
confidence it would soon fall back.

“What we do is look through temporary effects on inflation,” Bean
said, adding the MPC “can’t do much about the current rate of
inflation.”

“The threats at the moment are, actually, more that inflation will
be too low in the medium term rather than too high and that is why we
restarted our asset purchases,” Bean said.

The BOE official said the spike in CPI “mainly reflects a range of
special factors temporarily raising inflation.”

He cited sterling’s fall which “has taken time to work through to
imports” along with the increase in value added tax.

Bean noted there had been large rises in commodity prices, with
high oil prices driving up utility bills and these factors have been the
main drivers behind the latest pick-up in inflation.

“As we go into next year that rate of inflation will come down
pretty sharply,” he said and “the big squeeze on household incomes that
we have seen this year shouldn’t be repeated next year and there is a
bit of light at the end of the tunnel for consumers.”

Bean sympathised with the plight of savers hit by ultra-low
interest rates.

“From our point of view the sooner we can get interest rates back
up to a normal level, the better it would be,” he said.

He added, however, that a premature rate hike would lead to higher
unemployment but said hopefully it would not be too long before rates
get back to something like normal.

The BOE deputy governor said the UK had been hit by events abroad,
with the euro area problems starting to have spillover effects and to
hit confidence here.

MPC members are on a regional tour of the north west, and are
giving interviews to local media.

Earlier Wednesday Bean’s colleague, MPC member Ben Broadbent, took
some encouragement from recent developments.

The extra quantitative easing sanctioned by the MPC will have some
impact, Broadbent said, in a BBC Radio Lancaster interview adding “It is
also encouraging that over the last two to three weeks policymakers in
Europe are showing signs of getting to grips with some of the big
problems there.”

Broadbent also said inflation was higher due to temporary factors.

At their October meeting MPC members voted unanimously for an extra
stg75 billion of QE.

–London newsroom: 4420 7 862 7491; email: ukeditorial@marketnews.com

[TOPICS: M$B$$$,M$$BE$]