Thursday, October 11 08:00:17
Another round of quantitative easing may not be "compatible" with the Bank of England's inflation target, and does not provide a definite answer to boost Britain's economy, Martin Weale, a top BoE policymaker, said in comments published today. "It is certainly not self-evident to me in the light of the apparent stickiness of inflation that substantial extra support for the economy would be compatible with the inflation target. I am concerned about the stickiness of inflation," Weale is quoted as saying in the Daily Mail newspaper.
Weale also warned that Britain could suffer a 'triple-dip' recession, meaning the economy slides back into negative growth later this year after the briefest of revivals. "I certainly would not say there is no risk of that happening. What we have learned over the last four or five years is the capacity of the economy to surprise in ways people might not have thought possible." Weale explained that he did not see a definite case for further monetary stimulus because "there are two things pulling in opposite directions".
"On the one hand, economic growth is weak and the economy looks to be more or less flat. On the other hand, inflation gives a sense of being becalmed at something above our target," he said. Inflation in Britain has dipped to 2.5 percent but still remains half a percentage point above the BoE's 2 percent inflation target. "The persistent worry we have is that if people get used to the idea of high inflation, if they take the view that the Bank of England isn't bothered about the inflation target, it can lead to increased inflation risks and can affect the way in which people negotiate wages and set prices." "You get much greater stability with inflation targeting and for the regime to be credible people have to think it is taken seriously," said Weale. ( C) Reuters