Bank of England Deputy Governor Paul Tucker said policy makers will keep inflation expectations anchored to the central bank’s 2 percent goal as the pace of price gains slows less than expected this year.
“Inflation might remain above 3 percent throughout the second quarter of this year, and possibly into the second half of the year,” Tucker said in a speech today in Liverpool, northwest England. The rate of consumer-price gains remains “uncomfortably above target,” he said.
Fellow policy maker Adam Posen ended his push for further stimulus this month and David Miles described his call for more as “finely balanced” as officials said inflation may turn out faster than forecast, according to minutes of the Monetary Policy Committee’s April meeting published today. Tucker said the rate of price increases may be “a little higher” than estimated as a jump in energy prices threatens to stoke an inflation rate in its third year above target.
“Monetary policy will underpin the recovery so long as that remains consistent with anchoring inflation expectations in line with achieving the 2 percent target over the medium run,” Tucker told the Association of Corporate Treasurers’ annual conference. “We shall not let that slip.”
Posen joined the majority of the nine-member MPC in seeking no change to the 325 billion-pound ($517 billion) asset-purchase target, minutes of their April 4-5 meeting showed. While officials noted the U.K. may face a recession in the first half of this year, they said inflation might pose more of a danger than previously anticipated.
The bank’s forecasts in February showed inflation would slow to about 3 percent by the end of the second quarter from a peak of 5.2 percent in September and the rate would fall below their goal by the end of the year. The MPC split that month as seven policy makers voted to raise the bond plan by 50 billion pounds, while Posen and Miles wanted a bigger increase. The two were outvoted last month seeking a 25 billion-pound increase.
Policy makers Martin Weale and Spencer Dale have warned that price gains may slow less quickly than expected. Inflation accelerated for the first time in six months in March to 3.5 percent from 3.4 percent the previous month, data yesterday showed.
“In the near term there is considerable uncertainty about the path” that inflation will follow, Tucker said.
‘Broadly on Track’
The deputy governor said that the outlook for U.K. growth “still looks broadly on track” compared with projections published in February by the central bank. “Surveys point to growth in underlying activity over the first half of 2012 -- not stellar growth, indeed modest growth, but growth nonetheless.”
Tucker said temporary factors such as a poor performance in construction data at the start of the year and the queen’s Diamond Jubilee in June may result in “weak headline” growth numbers for the first two quarters of 2012.
“Extremely weak” construction output at the start of the year may have left economic activity in the first quarter “close to flat,” Tucker said.
“Company insolvencies have ticked up, and will likely continue to do so for a while,” the deputy governor said. “There is also a risk that households will spend less than expected in order to rebuild their balance sheets.”
“With government needing to set fiscal policy in order to repair the public finances, that means that the burden of stimulating our economic recovery falls mainly to monetary policy,” he said.
Data today showed U.K. jobless claims rose less than economists forecast in March and a broader measure of unemployment fell for the first time for almost a year, signs that the labor market is stabilizing.
Jobless-benefit claims rose by 3,600 from February to 1.61 million, the Office for National Statistics said today in London. The median forecast of 29 economists in a Bloomberg News survey was for a gain of 6,000. Unemployment as measured by International Labour Organization methods fell to 8.3 percent in the quarter through February from 8.4 percent.
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