Spencer Dale, the chief economist of the Bank of England, said today that Britain was on the road to recovery, as he sought to play down his dissent from the rest of the Monetary Policy Committee (MPC) over the controversial £200 billion programme of quantitative easing (QE).
Mr Dale, who voted last month to keep QE at £175 billion, against the majority on the committee, who decided to raise it by another £25 billion, told the Essex Institute of Directors in a speech that he had been concerned about stoking inflation, given that output was growing above trend and “further substantial injections of liquidity might result in unwarranted increases in some asset prices”.
But he said: “I should stress that I do not think there is any strong evidence to suggest that any of the increases in asset prices are out of line with the improving economic outlook ... It is a risk that we need to be alert to.
“All MPC members — myself included — were of the view that a significant degree of monetary stimulus needed to be maintained in order to meet the inflation target.”
However, he also pointed out that, in the short-term, inflation looked likely to increase sharply.
Advertisement
“Indeed, it is quite possible that the Governor [Mervyn King] will have to write a letter to the Chancellor early in the new year explaining why inflation is more than one percentage point above the [2 per cent] inflation target.”
But in his speech, Mr Dale said that the MPC could do little to affect such short-term movements in inflation and that, longer term, inflation was likely to drop back down below the 2 per cent target.
He said that the MPC’s actions in cutting interest rates from 5 per cent to 0.5 per cent in six months and in pumping extra cash into the economy from March through quantitative easing had “played a critical role in the stabilisation of the economy”.
A year ago, the country was in “economic freefall”, he said, but the year is ending with “signs that we have turned a corner on the road to recovery. But there is a long way to go with many challenges ahead.
“In facing these challenges, the Monetary Policy Committee will do whatever it takes to ensure that inflation remains on track to hit the target.”