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18th of September 2010
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September 15, 2010    

BoE policymaker admits high inflation is a concern

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by Kay Murchie

Professor David Miles, who joined the Bank of England’s Monetary Policy Committee (MPC) in June 2009, has warned that high inflation is a concern and it is likely to remain relatively volatile over the next few years.

Professor Miles was quotes in the East Anglian Daily Times as saying: “From my point of view on the MPC, I am particularly concerned about inflationary pressures, since it is our job to keep the rate close to the 2 percent target and it is uncomfortably above that at present.

“I think it is likely that there is a lot of spare capacity in the UK and that would keep inflationary pressure in check but there is a great deal of uncertainty about that,” Prof. Miles added.

His comments came on the same day that the Office for National Statistics (ONS) revealed Consumer Price Inflation (CPI) held steady at the annual rate of 3.1% in August.

The latest figure represents the ninth consecutive month that inflation has been above the Bank of England’s target of 2%.

Inflation remained higher as air transport fares increased by 16.1% – a record gain for this time of year, according to the ONS.

Furthermore, rising costs of bread, cereals and vegetables also fuelled prices.

Inflation has remained stubbornly high over recent months and at the Bank’s last three interest rate meetings, policymaker Andrew Sentance voted for rates to be lifted from their current historic low of 0.5% – where they have been since March 2009.

The CPI inflation rate is a benchmark for the Bank of England’s MPC but the Bank has already noted that inflation has remained more persistent than it had expected.

Last month, presenting the bank’s Quarterly Inflation Report, Mervyn King, the Bank’s Governor, said inflation will not fall below its target of 2% until the end of 2011.

The recent decision to hike VAT to 20% next year by the coalition Government will undoubtedly keep inflation higher, noted the Bank.

In related news, policymaker Martin Weale has suggested that the Bank should consider extending its £200 billion quantitative easing (QE) programme.

QE, also known as printing money, is a process whereby the Treasury injects funds into the financial system to ease pressure on banks by giving them extra capital.

The Bank embarked on its QE programme in March 2009, when the economy was in the midst of its worst recession in more than five decades.

Mr Weale, who joined the MPC last month, said the economy many need to be stimulated further and one “obvious” way is QE.

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