Bank of England's Spencer Dale warns of hard times

By Hugh Pym
Chief economics correspondent, BBC News

  • Published

The Bank of England's chief economist has told the BBC there are "relatively hard times ahead".

Spencer Dale said the possibilities of growth remaining feeble and inflation high were "very significant risks".

Mr Dale, who sits on the Bank's Monetary Policy Committee (MPC), has voted for interest rates to rise in recent months.

Mr Dale was on a two-and-a-half day visit to the Scottish Borders and Edinburgh.

He visited a textile factory and a timber processing plant, as well as speaking at meetings of the CBI and Chambers of Commerce.

It was part of the MPC's regular programme of trips around the UK to gauge the state of the economy.

During the visit, he took time out to speak to the BBC.

Inflation risk

I first asked Mr Dale about why he had voted at four successive meetings for a 0.25% increase in the Bank's official interest rate.

He has been in a minority on the committee, with the decisions coming down in favour of holding rates at the record low of 0.5%.

He acknowledged that economic growth was subdued.

"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," he said.

But the Bank's top economist added: "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."

So should households expect an increase in the cost of borrowing sometime this year?

"I think the level of interest rates at the moment is at an extraordinary low level - the Bank rate is at the lowest level it's ever been," he said.

"At some point, I do expect interest rates to rise, but how quickly and how much, I really can't say."

Mr Dale made it clear that he was open-minded and could change his vote at future meetings of the MPC.

"I could change my view at any point in either direction - that's the only way you can behave as a policymaker," he told me.

"You have got to approach this job with a big dose of pragmatism and humility. We don't know precisely what's going on in the economy at the moment and we know even less about how the economy is going to evolve going forward.

"So all you can do I think is remain open-minded, keep challenging yourself and then vote in terms of the interest rate you think is most appropriate to get inflation back down to target."

'Bleak time'

Households are facing an intense squeeze with average pay rises about half the annual rate of inflation.

Mr Dale argued that this was part of the rebalancing of the economy away from consumption and borrowing towards investment and export growth.

He pointed out that monetary policy could not offset this process. But he added: "I understand exactly the pain that many households are feeling and have huge sympathy for them."

I asked him whether there was light at the end of the tunnel with some indicators still looking bleak.

"I think the next year or two will be a relatively bleak time. I think we have relatively hard times ahead," he replied.

"But I think we are starting towards a path of sustainable recovery.

"The lower level of sterling should help to support this rebalancing of the economy and, moreover, I do expect inflation to start to fall in a year or two's time and that will also help to reduce some of the pressures."

But is he worried about growth remaining pretty weak?

"I am worried about growth remaining feeble and I am also worried about inflation remaining high - and if you like that's the dilemma facing the MPC at the moment - trying to balance these two very significant risks."

Mr Dale left the impression that the Bank of England was well aware of the conflicting pressures in the economy and that there would be challenging times ahead as policymakers decided when to make the first move on interest rates.

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