Brititan economy aggravates double-dip recession risk: Weale

BALANCE BETWEEN WEAK GROWTH AND HIGH INFLATION

"We have to form a balance between the two. As you know, we set monetary policy not on the basis of the current inflation rate, but rather with the aim of delivering the inflation target over the 2-3 year horizon.

I see my voting as essentially pragmatic, so when I come to the October meeting I will have to form a view about what is the bigger risk the high level of inflation that's well above target, and has been well above target for a long time, or the fact that growth prospects do seem to have worsened in the last few weeks."

"We have seen a number of things since then (the August forecasts).

"The growth outlook has worsened. Since the forecast commodity prices have been more buoyant than we've expected and wage growth has picked up slightly more than we'd expected.

"I am not saying that those necessarily offset the worse growth outlook. But we should certainly not assume that if one focuses on inflation that all the news has been one way.

"I think I can say that there are inflationary issues as well as growth issues.

I think if you look at our records from earlier this year you will see that rightly or wrongly I have been more concerned about inflation than Adam Posen was."

"What was striking in summer of 2008 was that business surveys things like the CBI survey and so on that had bobbed around, suddenly took a very sharp turn for the worst.

"Now, of course, we have seen a large drop in services indicator but that's happened four times in the last 15 years or so. In 2008 it presaged a crisis, in the late 90s and early 2000s it didn't. What went on in 2008 was that the indicators got worse and worse. So far that hasn't been happening, but it's obviously something I'll be keeping a very careful eye on."

"I have always said there is a significant risk of a double dip if you look at the sort of risks that the economy is exposed to no one could ever say there was no risk of that.

"I made that point in the summer of last year and also in July of this year before things worsened.

I did say there was obviously a risk of a second recession and looking at what's happened in the last two months or so, anyone would have to say that it's greater than it seemed in July."

"All I can say is what's going to influence my voting behaviour and that at each meeting I will look at the risks to inflation, bearing in mind what the likely path of output is going to do to the inflation rate.

"If when we get to the October or November meeting I take the view that without further support inflation is likely to undershoot its target then obviously I would support further QE.

But the right thing to do is to form an opinion when we have to vote, and not try and predict what I'm going to do in advance.

"I would consider more asset purchases as warranted if it seemed likely that inflation was substantially going to undershoot the target.

"What we have seen recently is that unemployment has gone up but also that wage increases have picked up very slightly, so we do have problems with growth, but equally we should not lose sight of the fact that inflation is high and there are substantial inflationary risks present."

"I wouldn't want to commit myself to any particular threshold.

"I do certainly think that after the recent history we had of inflation being above target for quite a long time, to say that we should immediately start stimulating the economy because we have a forecast that shows an inflation rate of 1.9 percent rather than the 2 percent target would be showing a bit too much faith in our forecasting capacity."

"One has to recognise that there are limits to things the bank can do on its own.

"My colleague (Adam Posen) mentioned a range of policies. One might also want to think of things that might work through existing institutions because they would be likely to be faster. But those would require support and interaction from the government, they aren't necessarily things the MPC could just decide to do."

"The biggest risk for the UK is the domestic consequences that flow from the problems of the euro area.

"The way I see the problems of the euro area, some of the policy making looks like the cat that wanted to catch the fish without getting its paws wet.

"It is something that has gone on for over a year for now. It's the source of continuing uncertainty."

Copyright Reuters, 2011