MPC worried energy could fuel inflation

City A.M. Reporter
THERE are big upside risks to energy prices when the global economy recovers, Bank of England (BoE)Monetary Policy Committee member Andrew Sentance said yesterday.<br /><br />In a speech in London that made little reference to the monetary policy outlook beyond saying Britain and other nations appeared to be emerging from recession, Sentance said he expected energy markets to continue to be a source of volatility in the coming years.<br /><br />&ldquo;On the energy front, I can see substantial upside risks to prices over the coming recovery as demand picks up across the global economy and Asia plays a leading role in the growth of the world economy,&rdquo; he said, according to the text of his remarks.<br /><br />&ldquo;Against the background of supply constraints, this creates the potential for continuing price volatility.&rdquo;<br /><br />High energy prices last year pushed up CPI inflation in Britain to more than double the two per cent target level and meant interest rates were kept higher than they otherwise would have been given the economic slowdown that turned into recession. Falling energy prices have since heaped downward pressure on inflation.<br /><br />Sentance said it was not clear the global economy would return to the apparent &ldquo;great stability&rdquo;. &ldquo;If stability does return, as I hope it does in the coming recovery, we need to be looking very carefully to see where the next big global shock might be coming from. And the energy market is one of the prime candidates we need to keep an eye on,&rdquo; he said.<br /><br />Sentance noted that while recent evidence suggested that &ldquo;the UK and other major economies are starting to recover from the deep recession&rdquo;, important challenges lay ahead on both the financial system and resolving global imbalances.