Not all of the UK’s disappointing growth in 2011 can be attributed to the sovereign debt crisis, says the Bank of England’s (BoE’s) chief economist.
In a speech given at the London headquarters of Bloomberg, Spencer Dale pointed to increases in VAT, energy bills and import prices as key contributors to the “surprising weakness in consumption” throughout 2011.
However, Dale remains confident that contagion from the eurozone certainly accelerated a weakening of growth in recent months.
This recent deterioration in economic activity, which led to a further round of quantitative easing (QE) in October, also prompted Dale to speak out in defence of the asset purchase programme.
His response was to deny that QE signalled a “reduced commitment” to the BoE’s 2% inflation target and refute that the UK’s economic situation would be any better in its absence.
Dale also remains adamant that historically low gilt yields do not imply an ineffectiveness regarding QE.
Looking ahead, Dale predicts that “2012 should … be remembered as the year in which inflation fell sharply”, indicating that Consumer Price Index inflation should drop to the “low 3s” by March 2012.
The question which remains, says Dale, is how persistent inflation will be following this drop and whether it can be reduced to the Bank’s target levels by 2013.
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