LONDON Feb 2 The Bank of England may be forced
to act on interest rates if commodity prices continue to rise
and inflation becomes embedded, the central bank's Deputy
Governor Charles Bean said on Wednesday.
The bank still expects that, in the absence of further
economic shocks, inflation will fall back towards its target
level, he was quoted as saying in the regional Western Mail
But commodity price pressures could remain high in the
medium term, he said.
Bean suggested a rate rise need not dent confidence if it
coincided with an economic recovery, but would not be "nice" if
it was in response to external factors.
"If we raise rates because the economy is growing quite
strongly and the recovery is entrenched then that's a 'nice'
rise in interest rates and unemployment will be coming down," he
was quoted as saying.
"On the other hand, if it is in response to a spike in oil
prices that we think is likely to persist and inflation is
becoming embedded that is not a nice reason to raise interest
rates, but we would have to do it."
The price of Brent oil has breached the key $100 a barrel
Britain is trying to balance the needs of keeping a lid on
inflation while not wanting to stifle growth as the economy
emerges from one of the deepest recessions in generations.
Inflation hit an eight-month high of 3.7 percent in December
and was at least a percentage point above the bank's 2 percent
target throughout 2010, causing some economists to question the
central bank's inflation-fighting credentials.
Bean voted for no change to policy at the bank's last
Monetary Policy Committee in mid-January.
(Writing by Avril Ormsby and Fiona Shaikh; Editing by John