Britain faces a “bleak time” over the next two years due to low economic growth, the Bank of England’s chief economist said yesterday.
Spencer Dale indicated that interest rates would rise this year. They were held at a record low of 0.5 percent this month, as anemic British growth offset surging inflation. Britain’s central bank has held the rate at the same level for more than two years.
“I think the next year or two will be a relatively bleak time. I think we have relatively hard times ahead,” Dale told the BBC.
“I am not confident about the strength of the recovery, particularly in terms of the weakness we see in the household sector and the implications that may have for consumption,” Dale said
“I am even more worried about inflation and the risk that we may see price pressures from the rest of the world continue to push up and the high levels of inflation we have seen in the UK persist for longer than we otherwise expect,” he added.
Bank of England policymakers voted 6 to 3 this month to keep its key interest rate at 0.5 percent. Dale voted for a 0.25 percent rise.
Despite high inflation, the central bank has refrained from hiking its key lending rate because of Britain’s weak recovery from recession.
Inflation over 12 months has meanwhile held above the Bank of England’s official target rate of 2 percent since December 2009.
British annual inflation soared to 4.5 percent last month, hitting a two-and-a-half-year high and stoking the prospect of a rate hike.
“The level of interest rates at the moment is at an extraordinary low level,” Dale said.
“At some point, I expect interest rates to rise, but how quickly and how much, I really can’t say.”
“I am worried about growth remaining feeble and I am also worried about inflation remaining high — that’s the dilemma facing the MPC [monetary policy committee] at the moment — trying to balance these two very significant risks,” he said.