'Low and stable' inflation vital for the UK's future prosperity Go compare with our comparison table

'Low and stable' inflation vital for the UK's future prosperity

24 September 2010 / by Paul Dicken

The Bank of England has 'not gone soft on inflation', according to its chief economist.

In a speech at Cardiff University Business School, Spencer Dale said 'our future prosperity will depend on our maintaining an environment of low and stable inflation.'

He said he made no apology for focusing on inflation as his topic for the speech, and was inspired by Tony Blair in the summing-up of his three main priorities for monetary policy: inflation, inflation, inflation.

The rate of inflation continues to remain well above the Banks target of two per cent, with the latest minutes for the Monetary Policy Committee showing just one member in favour of even a slight increase in interest rates.

Dale refuted suggestions that the Bank was somehow in cahoots with the government over the issue and was leaving inflation to rise as a way of eroding the level of the public finance deficit.

He said: "One of the most worrying comments I have heard in recent months came at a lunch of senior businessmen I attended. One of the diners suggested the UK was returning to its old ways of 'depreciating the exchange rate and inflating its way out of trouble.'"

Dale cited price level shocks in oil and commodities, VAT and the sterling exchange rate as factors pushing up inflation.

He said monetary policy at the moment was 'extraordinarily loose' but to withdraw some of the economic stimulus measures the Bank has put in place had risks.

But he added that confidence in the Monetary Policy Committee could waver if inflation remains high.

"We lose our credibility at our peril – once the genie of inflation credibility escapes it is costly to put back."

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