BoE chief economist: Inflation will fall to 3% by March

Bank of England executive director and chief economist Spencer Dale believes inflation will fall to around 3 per cent by March next year.

Giving a speech in London yesterday, Dale said he thought 2012 would be “remembered as the year in which inflation fell sharply”.

In November, consumer price index inflation fell to 4.8 per cent from 5 per cent the month before. However, this was the 24th consecutive month that inflation has exceeded the BoE’s official target of 2 per cent.

Dale, who is also a member of the BoE’s Monetary Policy Committee, said people should think about near-term inflation in “two separate phases”, in which the first stage would see inflation fall to around 3 per cent by the end of March.

He said: “The first phase is the period between now and next March or so, during which CPI inflation should fall rapidly as the price level increases we saw around this time last year – from the VAT rise and the increases in petrol prices – drop out of the twelve-month inflation rate.

“These base effects alone should pull down on inflation by between 1.5 to 2 percentage points by the end of 2012 Q1. Barring some large and unanticipated price increases, CPI inflation looks set to come down to the low 3’s by March next year.”

However, he added it is not easy to predict what will happen to inflation after March.

Dale also said, while pensioners and savers suffered from a record-low base rate, it is vital rates are kept at 0.5 per cent to stop the UK entering recession.

He said: “Savers and pensioners in our society have much to be angry about. But I am not sure that anger is best directed at monetary policy.”