Dale has said that he sees a period of modest, but sustained growth for the UK, with CPI rising over the next few months and hovering around three per cent. However, a weakness in wage growth means that domestic cost pressures will remain contained and inflation is likely to fall back to the two per cent target over the next two years.
The outlook for growth and inflation is complicated by the considerable uncertainty concerning the extent to which the financial crisis has impaired the supply side of our economy. In particular, the extent to which the puzzling weakness in productivity in recent years stems from the weak demand environment and so may lessen as the economy recovers or whether it largely reflects other factors, such as the damaged banking sector, which might persist even as output recovers. As a result, the short-run trade-off between output and inflation is unusually uncertain.
He adds that there is a risk that the “extraordinary stimulus provided by the MPC, and other central banks, encourages excessive risk taking” that could threaten financial stability and make it harder for the Committee to exit its ultra-loose monetary policy as the economy recovers.
Broadbent, meanwhile, has said that while central banks (and the MPC) need to be conscious of excessive financial risks, he doesn't yet see "any great cause for concern", with equity prices still 20 per cent below their recent peak in real terms (and much further relative to corporate earnings) and credit extended to non-bank financial companies stagnating over the past year and continuing to fall relative to GDP. Thus, his vote against further expansion of asset purchases are not motivated by a concern that monetary easing has had too much of an effect on prices of financial assets.
The biggest risks, he says, continue to come from the eurozone, which is unlikely to recover any time soon.
It seems to me unlikely that, on its own, monetary policy can unwind the imbalances that built up within the euro area before the crisis or offset the effects of them that have been so plain since. At best, it can buy time for the necessary adjustments to occur and, if this time is to be used profitably, other policy makers need to act too. The shape of a more sustainable eurozone, one that involves a greater degree of risk-sharing in banking regulation and fiscal arrangements, is now detectable. But there are probably further steps to be taken and considerable uncertainty still about how rapidly this will happen.