INFLATION may not fall as fast as the Bank of England forecasts next year, according to the Bank’s chief economist Spencer Dale.
Most economists expect Britain’s central bank to back more quantitative easing in February, when October’s £75bn programme of purchases is complete.
Mr Dale said in a speech at media company Bloomberg yesterday: “The fall in inflation over the next few months is not likely to shed much light on the persistence of inflation beyond that. The base effects are already baked in the cake.
“The behaviour of inflation... from the spring of 2012 onwards is far more uncertain and far more important for the future stance of monetary policy.”
Mr Dale was speaking as the Office for National Statistics released data showing inflation fell in November to 4.8 per cent from 5.0 per cent, in line with economists’ forecasts. Inflation peaked at a three-year high of 5.2 per cent in September, but the Bank predicts it will be below its two per cent target by the end of 2012 due to the fading of one-off effects and broader economic weakness.
Mr Dale added: “There is certainly a possibility inflation could fall significantly below the target, especially if demand turns out to be weaker than we expect. But there is also a risk, especially in the absence of an escalation of the euro area crisis, that inflation could prove to be more persistent.”
RBC economist Jens Larsen said that Mr Dale was drawing an important line in the sand, although he was still likely to join in a unanimous Monetary Policy Committee vote for more QE in February.
“He’s certainly the most reluctant, but I think by the time they get to February they will just have had the first estimate of fourth quarter GDP, which will be weak. But down the line in May, he will be the main proponent for stopping,” Mr Larsen said