By David Thomas

CARDIFF, Wales (MNI) – Bank of England Chief Economist Spencer Dale
said Wednesday the big issue facing the Monetary Policy Committee is not
a double-dip recession but the fact that output is now 10% lower than it
otherwise would have been if the financial crisis hadn’t happened.

Speaking at the Cardiff business school, Dale said that the UK
needed a period of “sustained, robust growth to get us back to more
normal levels.”

“That is what we need to see in order to hit the inflation target,”
he said.

Dale added that the UK had not experienced the same kind of asset
bubble in the housing market as seen in the U.S. but he added, “it could
be we haven’t seen it all and there is more to come.”

In fact, he noted that “many people have been surprised by how
little house prices have fallen.”

During a question and answer session, Dale said he agreed entirely
with the proposition that the MPC should look through the impact of the
rise in the VAT on inflation. This was why the MPC had decided to keep
bank rates “at an extraordinarily low level” despite the rise in
headline inflation, he said.

Dale said there is “an absolutely vigorous debate going on in the
MPC at the moment.”

He added the MPC is trying to assess the balance of upside risks to
inflation versus the downside risks coming from a period of sustained
slack in output.

Members of the Committee are “trying to balance these risks,” he
said, adding, “that is the process we are trying to manage.”

In other comments, Dale said that the MPC had also looked through
other run-off effects on the price level such as oil. If the MPC decided
increases in oil prices were becoming a permanent feature of the global
economy, then it would need to react, he said.

Dale also said that he preferred the current regime of a “clear,
precise” inflation target rather than the range that some economists are
currently arguing for.

He also suggested that the rise in VAT due at the end of the year
would push inflation to a level at which the BOE would have to be held
to account, referring to the system by which the governor of the BOE has
to write an open letter when the CPI deviates by more than one
percentage point from the 2% point target.

** Market News International **

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