Be alert and ready to change policy, Bank of England's Spencer Dale tells rate setters

Uncertainty over inflation and the speed of the economic recovery means rate setters must alter their views, Bank of England chief economist Spencer Dale said today.

Dale warned that the Monetary Policy Committee had to be ready to either tighten or loosen its policies as the situation demanded.

"We must be prepared to change our views as circumstances change," he said in an interview with the Birmingham Post and Mail newspaper.

"There are factors of this recession that we have never seen before and we have no idea how they may play out. The most important thing is that we remain alert and ready to move in either direction."

The MPC split three ways this month, with Adam Posen calling for a resumption of stimulus, Andrew Sentance repeating his call for a rate rise and the remaining seven voting for no change.

Dale said: "I think what we are seeing on the MPC is that reasonable people will differ when policy discussions are so finely balanced.

"My key gut feeling about interest rates is that I know that I don't know what will happen and anyone who believes they do know, I would disregard them."

The MPC's big challenge will be to manage a "balancing act" at a time of above target inflation and uncertainty over the economic recovery, he added.

"On one hand there is inflation which is currently above target and will most likely stay above target for the rest of the year due to things like the increase in VAT," he said.

"On the downside is the fact that our economy has lost around 10% of the output it would have enjoyed without the recession and while the economy is recovering we are not sure much it will be able to fill that gap."