Spare capacity 'weighing down UK inflation'

27 March 2012

Britain's inflationary pressures will continue to be weighed down by the level of spare capacity in the country's economy at present.

That is according to David Miles, policymaker at the Bank of England (BoE), who feels this has been "depressing domestically-generated inflation pressures" in the recent past and will carry on doing so in the coming months.

During a speech delivered in Arlington, Virginia, Mr Miles explained that this represents a "good indication" of where the nation's underlying inflationary forces are and it is because they look "very muted" that the BoE has opted to loosen monetary policy this year.

Earlier this month, the official and his colleague Adam Posen wanted to increase the UK's asset bond purchasing budget by another £25 billion ($40 billion), but were outvoted by their fellow Monetary Policy Committee members.

He added that the most effective way for policy to enhance the fiscal positions in the current environment is through the creation of conditions for "non-inflationary growth".

By Asim Shah

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