Bank's Bean at parliament committee

LONDON (Reuters) - Below are highlights from new Bank of England Deputy Governor Charlie Bean's "confirmation" hearing before parliament's Treasury Committee on Wednesday.

Bean, formerly the Bank's chief economist, took over from Rachel Lomax as deputy governor on July 1.

Below are highlights from the session:

"There is no doubt that the UK economy presently faces the most challenging set of circumstances since at least the early 1990s and possibly earlier.

"We are faced with two substantial shocks of unknown impact and duration: the de-leveraging that is underway in financial markets and the associated tightening in the availability of credit; and the relentless rise in oil and other commodity prices.

"Both these shocks depress activity, but have conflicting effects on inflation."

"Meeting the Chancellor's inflation target, whilst simultaneously avoiding undue volatility in output, will be no easy task. So ensuring that the MPC gets the best possible analysis and intelligence from both the Monetary Analysis and Statistics, and Markets directorates, will be my number one objective."

ON DOWNSIDE RISKS

"On the downside, the dislocation in financial markets probably has further to run, especially if a slowing economy here and abroad generates a second round of write-downs, this time associated with corporate loans.

"Moreover, the impact of the tightening in the terms of availability of credit could prove greater than is embodied in the central case in our most recent set of projections.

"That might be so, for instance, if falling house prices have a greater depressing effect on household spending than we currently anticipate.

"In that case, the slowdown in growth could be even more pronounced and/or be more persistent, leading inflation to undershoot the target in the medium term."

UPSIDE RISKS

"The second risk relates to the prospects for commodity prices, especially oil, and the possibility that the current period of elevated inflation will lead to inflation expectations becoming dislodged and the higher inflation becoming embedded in the economy."

"There are two potential upside risks to inflation."

"One is simply that the underlying shock, the rise in global commodity prices actually continues, instead of commodity prices levelling off, the oil price levelling off, and I don't think one can discount the possibility that oil prices may continue to rise for a while. I think in the longer term there are good arguments for expecting them to come back simply because there are alternative sources of supply."