Bank dove predicts fall in inflation by mid-2012

THE Bank of England's leading dove Adam Posen has predicted that inflation will tumble to 1.5 per cent by the middle of next year as George Osborne’s austerity drive and the underlying weakness of the economy stifle consumer spending.

In an interview with the Guardian, Posen said: “If I have made the wrong call, not only will I switch my vote, I would not pursue a second term. They should have somebody who gets it right and not me. I am accountable for my performance. I'm holding my nerve because it is the right thing to do.” Posen challenged the view of the three hawks on the committee on four separate counts.

He said so-called “core inflation”, did not suggest that the economy was overheating; the recent strength in manufacturing only affected 13 per cent of the UK’s total output; it was too simplistic to say that the economy was overheating if inflation was high; and it would only be costly to take a wait-and-see approach to raising interest rates if there was a risk of an inflationary spiral. “We could get inflation back to target really fast if we put the economy through the wringer,” he said.