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Inflation and growth risks from euro zone to ease - Bank's Miles

Source: Reuters - Mon 24th May 2010

Inflation should fall back towards the Bank of England's target later this year, Bank policymaker David Miles said, highlighting the risks that problems in the euro zone posed to Britain's fragile recovery.

Inflation in Britain rose to a 17-month high of 3.7 percent in April, almost double the central bank's 2 percent target, and has been surprisingly sticky in recent months.

"It is a long way above our target level now but we have to take a long-term view," Miles told the South Wales Evening Post.

"The effect of changes to interest rates takes six to 12 months to come through. We believe inflation will have also dropped by then."

Miles said predicting how the economy would fare in the coming months was difficult due to the uncertainty caused by the euro zone's sovereign debt crisis.

"The euro zone problems in particular pose a risk to the fragile recovery of the UK economy," he said. "Europe is our biggest export market and we factor that risk into our judgements."

Miles defended the bank's strategy of quantitative easing, saying it had reduced the cost of borrowing money for large companies.

He said he expected the Bank's powers to be enhanced by the new coalition government's decision to give the central bank greater regulatory oversight.

"It should mean we have a wider range of instruments to help us control the economy and avoid problems in the future," he said.

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