THE adjustment in United Kingdom house prices will be "painful" for many households as home values fall to a more sustainable level, Bank of England Chief Economist Spencer Dale said yesterday.
"A range of indicators point to further weakness in the months ahead," Dale told business leaders in Dover. "This process of adjustment will be painful for many households."
While a decline in the housing market, slowing consumer spending and tighter credit conditions have pushed the economy toward a recession, inflation, spurred by higher energy and food costs, has reached an 11-year high, Bloomberg News reported. The Bank of England has kept the benchmark interest rate unchanged for the past five months.
"These risks are at present finely balanced," said Dale, who voted to keep interest rates unchanged at 5 percent this month. "A return to the remarkable stability of the past decade may not be in prospect. But neither is a return to the boom and bust of earlier years."
The UK would likely go through a period of "broadly flat" expansion and "relatively high" inflation, Dale said, adding that growth would resume and inflation return to the bank's 2 percent target "in due course."
Consumer prices rose 4.7 percent in August from a year earlier, the most since records began in 1997, the Office for National Statistics said. Bank of England Governor Mervyn King has said inflation would peak at around 5 percent in coming months. "I remain alert to the possibility that the current period of high inflation may cause inflation expectations to become less firmly anchored," Dale said.
Accelerating inflation has yet to affect Britons' spending. UK retail sales unexpectedly increased in August for a second month, statistics showed.