Spencer Dale says rate rises will be hard on families but are necessary for UK to maintain economic credibility
The Bank of England's chief economist has warned families to prepare for a squeeze on living standards, with interest rates likely to rise over the next two years.
Spencer Dale expressed concern about the strength of any economic recovery ? a sentiment echoed by the business secretary, Vince Cable, who has warned that Britain's economic model is broken.
Dale is one of nine members of the Bank's monetary policy committee and voted earlier this month for a 0.25% rise in rates. But six members voted to hold rates at their historic low level of 0.5%.
The bank made the decision before official figures showed the consumer prices index, the government's preferred measure of inflation, had risen to 4.5% in April, the highest level in more than two years.
Dale told the Financial Times that he was "not particularly happy" about voting to raise rates to control inflation.
"I don't take lightly the impact this could have on some families but I think the cost to our economy as a whole, were inflation to persist for longer and our credibility start to be eroded, would be even worse."
He said a quarter point rise in rates this year, followed by rises over two years, "didn't look wholly improbable".
His comments came as Cable warned that the political class has not yet prepared the public for the scale of the underlying problems facing the UK economy and the coming squeeze on living standards.
The Bank of England's quarterly inflation report, released earlier this month, predicted inflation would reach 5% this year. It forecast that inflation would remain above the government's 2% target throughout 2012 before falling back. But it said this would only happen if interest rates rose in line with market expectations from the third quarter of 2011.
Dale said: "I'm not at all confident that the recovery has taken hold and will definitely power away. However, I'm even more worried about what's going on in terms of inflation."
Source: http://www.guardian.co.uk/business/2011/may/21/interest-rate-rises-likely-economist
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