Member of MPC expects higher inflation

Speaking during a fact-finding trip to Scarborough, the economist told the Yorkshire Post: “At the moment I don’t see the case for further quantitative easing but obviously things could change.

“I also wouldn’t rule out the possibility that if inflation did look more entrenched than we expect then one might think that we needed to pay more attention to the inflation target.

“At the moment, I don’t think that’s terribly likely but I go with an open mind to each meeting.”

Dr Weale added: “Inflation is likely in the rest of this year to prove more buoyant than we had hoped when we looked at things in the winter.

“What’s been happening globally means that our spending power has been squeezed.

“The outcome is the return to relatively normal growth rates, which I am expecting, will take longer than we hoped.”

He said the Bank’s £325bn quantitative easing programme supported share prices, reduced bond yields and “probably” supported property prices.

He added that it has made investment cheaper for businesses and put more money into consumer pockets.

Dr Weale said that despite the UK officially entering a double-dip recession, “it’s nothing like what was happening in 2008 when we had that very sharp contraction”.

“However you look at the figures, the picture they show is that the economy has been stagnant and possibly contracting slightly. The precise tenths of a decimal point aren’t really here or there,” he added.

Dr Weale would not be drawn into speculation about the effects on the UK economy of Greece exiting the eurozone.

He said: “I think it’s very difficult to know.

“This of course is one of the reasons why people are finding it’s creating so much uncertainty.

“Obviously the euro area has put a lot of effort and a lot of money into building firewalls.

“Whether those firewalls will prove to be adequate we won’t know unless it’s tested.”

Dr Weale said he is hopeful that the UK will return to fairly normal growth rates next year.

“But if you look at where we might have been had the crisis not happened, there is a very large shortfall of GDP relative to that and the central region of our forecast is that over the two-to-three year horizon that we consider, there won’t be any significant progress in filling up that gap.

“I think it’s quite possible that it will be a slow process, by which I could mean a 15-20 year process, where we make up the lost time.

“People gradually exploit the opportunities that have built up during the period in much the same way as the 1930s because of the Depression and in the 1940s because of the Second World War.

“There wasn’t a lot of economic progress and we then had a 20-year period where people were able to make up for lost time.”

When asked about the long-term prospects for the United Kingdom, he said: “One of the problems that the British economy has had is that we haven’t been saving enough for future generations. That of course means at some point people are going to be disappointed.

“Obviously the problems of the last four or five years have not helped with that.

“It’s been an undercurrent of the British economy for the last 25 years.”

Dr Weale has carried out work for the Bank on issues connected with savings and pensions, including the impact of means-tested benefits on retirement behaviour and the adequacy of overall saving.

Referring to Sir Mervyn King’s so-called “paradox of policy”, he said: “If people consumed less and saved more, that would worsen our immediate problems.”

Dr Weale spent two days in Yorkshire meeting with businesses.

He said: “I’ve been interested in learning about people’s investment plans.

“Some people are saying ‘not yet’, others are saying that now’s a good time to invest.”