LONDON Nov 14 Britain faces the "unappealing" mix of a weak recovery and high inflation, the Bank of England's chief warned on Wednesday, adding that the Bank could still restart its bond buying programme to stimulate the economy.
Governor Mervyn King also batted back criticism of the decision to transfer back to the government the interest paid by the government on the bonds the BoE bought as part of its stimulus programme.
"We face the rather unappealing combination of a subdued recovery with inflation remaining above target for a while," King told the news conference presenting the central bank's latest inflation and growth forecasts.
The Inflation Report showed that inflation was likely to be significantly higher over the next 18 months than expected in August, posing a barrier to further policy stimulus.
King said that the outlook for inflation was the main reason why the policymakers decided to stop the purchases of gilts in November.
He reiterated that there were limits to what monetary policy could do to boost an economy undergoing far-reaching adjustments after the financial crisis amid severe headwinds from the euro zone debt crisis.
"But the (Monetary Policy) Committee has not lost faith in asset purchases as a policy instrument, nor has it concluded that there will be no more purchases," he said.