THE DAILY TELEGRAPH: The Bank of England is at risk of gradually losing public confidence due to persistently above-target inflation, posing an upward risk to future prices, the central bank's chief economist, Spencer Dale said on Thursday.Mr Dale – who voted for higher interest rates this month and last – broadly defended the BoE's past policy decisions in a speech to asset managers, but said it was now time to tighten what he described as "extraordinarily loose" monetary policy.
Unlike some of his colleagues on the nine-strong Monetary Policy Committee, Mr Dale said he was wary about the apparent stability of public medium- and long-term inflation expectations in surveys.
"I'm cautious about how much comfort we can take from the relative stability in these measures," he said.
"Although some economists may like to think otherwise, most companies and households have far better things to do than spend time formulating detailed expectations of the rate of inflation likely to prevail in five or 10 years time."
He said the bank's credibility could dissipate slowly over time, posing a major upside risk to the BoE's current forecasts of inflation falling back to target.
Specifically, the risk was that the public would think the BoE was prepared to tolerate very lengthy periods of above target inflation, rather than take rapid action to bring prices back to target, Mr Dale said. Read on and comment » | Thursday, March 24, 2011
