Bank of England policy maker says economic outlook uncertain, but inflation an issue

The Associated Press ~ staff The News
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LONDON - Britain's economic recovery is "clouded by great uncertainty" amid likely big cuts to public spending and continued tight access to credit, a Bank of England policy maker said Wednesday.
But Andrew Sentance, a member of the bank's nine-strong rate-setting committee, added that policy makers needed to be ready to crack down on inflation as import and services prices rise.
Sentance was speaking a day after official statistics revealed that Britain's worst recession since World War II is officially over - but only just.
A feeble 0.1 per cent rise in gross domestic product in the final quarter of 2009 was enough to officially end a grinding 18-month recession, but fell short of expectations of a stronger 0.3 to 0.4 per cent rise.
The Office for National Statistics also acknowledged that the figure could be revised up or down by around 01.-0.2 per cent in the next two estimates for the quarter.
Comparing the exit from recession to the experience of "bumping along the bottom" after the downturn of the early 1990s, Sentance said it was "very understandable" that there is still a lot of nervousness and uncertainty about the future pace of growth."
Sentance said the economy was facing opposing pressures.
"If the headwinds from the financial crisis and the consolidation of public finances dominate the outlook, the balance of risks to inflation are likely to be to the downside," he said in the text of a speech prepared for the British Property Foundation in London.
"But if the tailwind from the global economy, a competitive exchange rate and a recovery in confidence are felt more strongly, then the margin of spare capacity could be eroded more quickly," he added. "In that scenario, there will be more upward pressure on inflation."
The inflation rate jumped by 1 percentage point in December to 2.9 per cent, taking it past the bank's 2 per cent target for the first time since May.
The monetary policy committee holds its monthly meeting next week, when it is expected to keep interest rates at the current record low of 0.5 per cent. Economists said the future of its 200 billion-pound ($325 billion) asset purchase program is more uncertain.

Organizations: Bank of England, Office for National Statistics, British Property Foundation

Geographic location: LONDON, Britain

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