LONDON (MNI) – There is a risk that public confidence in the
Monetary Policy Committee’s desire to tackle inflation could fade as a
result of a long period of above-target inflation, Bank of England Chief
Economist Spencer Dale said Thursday.

“There is a risk that inflation may remain higher for longer than
currently expected. Either because global price pressures continue to
add to domestic inflation or because the persistent period of above
target inflation starts to become ingrained in wage and price setting
behaviour,” Dale said.

Dale said that although he thought growth would remain weak, the
risks to the inflation target in the medium-term were skewed to the
upside.

“I’m not at all confident about the strength of the recovery. My
central view similar to that in the February Inflation Report is
that growth is likely to be close to its average historical rate over
the next few years,” Dale said.

“But that is a pretty disappointing outlook given the depth of the
recession from which we are recovering. And there is considerable scope
for growth to surprise to the downside, particularly if households
retrench further,” he added.

“Rather, my vote to raise rates was driven by a concern that,
despite a relatively weak outlook for growth, the risks to the inflation
target in the medium-term were to the upside. In particular, the risks
from continuing global price pressures and the effects of the prolonged
period of above target inflation meant that the level of demand
consistent with achieving the inflation target had probably fallen,” he
said.

Dale also warned that he saw considerable headwinds to growth in
the UK.

“On the one hand, there is a risk that the strength and durability
of the recovery may disappoint. Our economy still faces considerable
headwinds, especially within the household sector, where real incomes
have been squeezed and many families may not yet have adjusted fully to
the implications of the substantial fiscal consolidation now in train,”
Dale said.

Having first voted for a rate hike in February, Dale again voted
with Martin Weale to increase Bank Rate by 25 basis points to 0.75% at
the most recent meeting of the MPC.

–London newsroom: 4420 7862 7492; email: ukeditorial@marketnews.com

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