The U.K. should make progress on rebalancing its economy, Bank of England's chief economist Spencer Dale said in the Quarterly Bulletin released Tuesday.
Britain's low national saving, a persistent current account deficit as well as the rapid expansion of balance sheets are potential reasons why the economy needs to rebalance. But the timing and impact of rebalancing will depend on the driving forces.
The financial crisis appears to have prompted some rebalancing already, but more will be required at some point, the report said. "A rebalancing of the U.K. economy could have important implications for monetary policy."
Financial market sentiment improved considerably over this period amid a range of actions by policymakers, both in the United Kingdom and abroad, Dale wrote in the bulletin.
Although primary capital market activity and bank funding conditions improved, concerns about the indebtedness and competitiveness of some euro-area nations persisted and remained a key influence on financial markets.
The margin of spare capacity in the economy will continue, and that will depress domestically generated inflation pressures, BoE policy maker David Miles said in a speech late Monday.
"Those domestically generated pressures are a good indication of where the underlying inflationary forces are and it is because they look very muted that monetary policy has been loosened over the recent past," Miles added.
by RTT Staff Writer
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