LONDON (MNI) – Any increase in quantitative easing measures by the
Bank of England could have a significant impact on inflation levels in
the UK, a senior BOE policy maker says Thursday.

In an interview with the Daily Mail published today, Martin Weale,
a member of the Monetary Policy Committee, warns additional QE causes
him concern over the stickiness of inflation.

“I am concerned about the stickiness of inflation,” Weale said.

“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,” he added.

Weale explained his concerns, noting the contradicting factors at
work.

“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 told the paper.

Despite the National Institute for Economic and Social Research –
an Institution Weale worked for before his MPC appointment – declaring
the UK to be out of recession, the policy maker is not so sure.,

“I think most people are expecting fairly good growth in the third
quarter. There was the Olympics effect and then you have the bounce back
from the second quarter,” he says.

“The Jubilee depressed output in the second quarter so you get an
automatic bounce back. But if we talk about underlying growth then I
think the economy is flat,” Weale said.

He continues: “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.”

Weale also said that a cut in Bank Rate is unlikely, something
also downplayed by a number of other MPC members, including the
governor.

“We can see risks associated with an interest rate cut,” Weale
said.

“The sort of risks that people are worried about are that some
lenders might find it worsens their financial position and as a result
they reduce lending so any decision to do that would need a careful
assessment of the benefits relative to the risks”.

Weale is not convinced by the latest data that the recovery has got
legs and rejects the idea of ‘green shoots’.

Weale also refused to put any kind of timing on when the recovery
could get underway:

“…I certainly wouldn’t want to say exactly when it is going to
happen. My hope and expectation is that there will be some improvement
next year.”

But he cites major risks too, rising prices as a result of food
price pressures and energy inflation. The euro zone and the looming US
fiscal cliff are other key risks.

Weale also sees a risk of a ‘triple-dip’ – meaning the economy
slides back into recession later this year after the briefest of
revivals.

“I certainly would not say there is no risk of that happening”, he
says. But it is not his central forecast, he makes clear.

“Everyone is expecting next year to be a bit better than this
year,” he says. But he adds that the euro zone could stymie that if
developments there worsen.

–London Bureau +20 7862 7499; ukeditorial@marketnews.com

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