–Adds Detail To Version Transmitted At 1654 GMT

LONDON (MNI) – The Bank of England’s Monetary Policy Committee is
facing “a real dilemma” over policy in the next few months, Deputy
Governor Paul Tucker said in a BBC Radio Bristol interview Tuesday.

Tucker said the question was whether the MPC should remove a little
of the stimulus it has provided. He argued against a sharp hike in Bank
Rate.

“Inflation is a worry, there’s no doubt about that, it eats into
people’s incomes and spending power and our job is to bring inflation
back to the 2% target and that’s going to take a little while. We face a
real dilemma over interest rates over the next few months,” Tucker said.

“To bring inflation down rapidly we would have to raise interest
rates very sharply which would weaken an economy that is still
recovering,” he said.

“The question we face isn’t to make a violent increase in interest
rates, it’s whether or not to take away just a little bit of the
stimulus we’ve been supplying the economy for the last few years. So
this is a delicate balance but it’s not dramatic in either direction,”
Tucker said.

The BOE’s Deputy Governor warned that oil prices were set to rise
further.

“They are (worried about inflation), here and abroad, developments
in the Middle East over the last week or so are likely to push up oil
prices and that makes our job harder but we’ve got a twin track approach
to bring inflation back to target over two to three years. We also need
to avoid jeopardising the recovery,” he said.

While acknowledging mounting inflation pressure, Tucker argued
things were better than they have been in previous decades.

“On inflation I think we’re still in a much, much better position
than we were in the 1970s, the 1980s or much of the 1990s, when one
looks at surveys of households and firms’ beliefs or the financial
markets, the vast majority remain convinced that we remain committed to
a 2% inflation target,” he said.

Tucker has been in the mainstream on the MPC, voting for unchanged
Bank Rate since April 2009 and no extension or reduction in quantitative
easing since November 2009.

–London newsroom 0044 20 7862 7491; email: drobinson@marketnews.com

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