Dovish Bank of England Monetary Policy Committee member David Miles has warned that it could take ages for monetary policy to return to normal - as the slack in the economy generated by years of underperformance remains.
Miles said that while business surveys of current and future activity point to stronger and consistent growth, and hardly and indicator has failed to improve, we may only be returning to normal growth rates - not normal activity levels.
If that level of activity is significantly below a rate consistent with controlled inflation – as I believe is the case in the UK today – then it does not make sense to quickly return monetary policy to a more normal setting once growth moves to more normal rates.
Two more signs of low activity that Miles pointed to - higher unemployment than before the crisis and wage settlements that have remain below inflation for a lengthy period.
Refuting analysis that suggests improving data means forward guidance has backfired, Miles suggested this is a "rather Alice in Wonderland, upside down logic" view, and that the Bank of England always welcomes signs of recovery.