Bank of England official insists high inflation can be helpful

Tim Wallace
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THE HIGH inflation plaguing the UK’s economy is better than the alternative of higher unemployment, top Bank of England policymaker David Miles argued over the weekend.

Ultra-loose monetary policy has been the right response to the crisis despite the impact on prices, as central banks fought to get the economy moving, he told a conference at the Boston Federal Reserve.

“There exist tradeoffs between bringing inflation back to target very quickly and growth,” the monetary policy committee (MPC) member said.

“Setting monetary policy to return inflation to target very fast is likely to generate a path for output and employment different from that if a more gradual return to the target was chosen.

“The UK’s monetary policy regime is a quintessential example of a flexible inflation targeting regime.”

However inflation has remained well above the Bank’s two per cent target since the end of 2009 and is expected to rise again in the near future as food and energy price rises impact on the index.

Analysts fear it could hit three per cent once more in the coming months, while governor Sir Mervyn King warned it will likely stay above the target for another two years.