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LONDON - The danger of a sharp economic downturn in Britain is more worrying than rising inflation, but the case for an immediate interest rate cut is not compelling, says Bank of England policymaker Kate Barker.
The BoE cut borrowing costs by 25 basis points to 5.25 per cent this month and signalled that there may be no more than a couple more cuts on the cards this year, given heightened inflation concerns.
Barker said there was little the Monetary Policy Committee could do now to stop inflation spiking well above the 2 per cent target in the short term, and warned that if that surge fed into inflation expectations it could be painful to reverse.
"My chief concern is the significant possibility of a large downside risk to growth, and therefore to inflation, as the impact of the credit tightening works through the economy," Barker said in a speech in northern England.
"I rate this a little higher than a large upside risk to inflation over the medium term from dislodging inflation expectations on the upside. And the change in credit conditions themselves means that any level of bank rate is somewhat more restrictive."
She said that although such conditions might point to an immediate case for lowering interest rates, it was "not compelling".
- REUTERS
