Inflation worries Bank of England's Weale

(Sharecast) Bank of England policymaker Martin Weale sees no compelling case for altering monetary policy and worries about the inflationary impact of further stimulus.

“At the present time a majority of the Committee does not see a compelling case either for slackening or for tightening policy,” he said in a speech at the Department for Business, Innovation and Skills analysts’ conference in London.

“This does not mean of course that we cannot make up our minds. It means that, in the light of the information that we have and the knowledge we have as economists for interpreting that information, we think, at least for the time being, that the right course is to leave policy unchanged.”

At last month’s meeting of the nine-member Monetary Policy Committee, Adam Posen voted in favour of increasing quantitative easing by another £50bn, while  Andrew Sentence kept up the pressure to hike interest rates by a quarter-point.

We’ll find out what everyone thought at November’s meeting on Wednesday.

Inflation will play a big factor in future decisions. It has been above the bank’s two percent target all year and is not expected to fall below it in 2011.

“The MPC cannot be sure that there is as much spare capacity as my calculations imply, and has to be sensitive to the fact that inflation in September was more than one percentage point above its target,” cedes Weale.

“Inflation over the next few months may well rise further, even if a subsequent decline is expected. I certainly worry about the effect on inflationary expectations of introducing additional monetary stimulus in such circumstances.”

Weale, a former director of the National Institute of Economic and Social Research, believes there is probably room for the economy to expand by 4-6.5 percent as a cyclical economic recovery, but admits that estimate is “highly uncertain”.

“At the end of 2013 the most likely outcome is that real GDP will remain about six percent below its pre-crisis trend, although one also has to remember that trend growth has probably fallen a little,” he said.

“In such circumstances, it would be right for the Monetary Policy Committee to do what it could to stimulate the economy further, provided that such a stimulus were consistent with meeting the inflation target.”