BoE's Miles says it is 'inconceivable' Bank will get it right

It is ‘inconceivable’ that the Bank of England will get policy right given the current uncertainty, Monetary Policy Committee member David Miles has said.

'It is inconceivable that you can get monetary policy exactly right. After the event we will have a better idea of which way we got things wrong,' Miles said at a speech in Dublin.

He said it is a near certainty that the decisions the Bank's rate-setting members make over the next year will be criticised four or five years from now.

‘If we tighten too quickly it will be a story of “myopic MPC learnt nothing from events of 2008”; if growth and inflation look stronger than I now think is the most likely outcome it will be “MPC completely failed to see what was obvious to nearly everyone - that inflation was out of control,' Miles said.

He said ‘it is entirely plausible that after the economic turmoil of the past few years’ the risks of inflation being appreciably above or appreciably below the target level a few years ahead are higher than in the past.

His comments will add to nervousness after inflation remained more than 1% above target in September.

He said the VAT increase being introduced by the government at the start of next year is likely to keep inflation above the 2% target a bit longer but said he is not blasé about that risk.

‘That is why I said that I thought we face a risk in the UK of not doing enough to bear down on inflation. But there is also a risk of tightening monetary policy too soon,’ he said.

And Miles said the risks have increased because we are clearly not in a normal cycle and pointed out low wage growth and weak household and business confidence are clear signs of that.

For some commentators the fact that Miles did not mention quantitative easing means he is not yet ready to vote for a second round of the bond buying programme.

Miles - formerly chief UK economist at Morgan Stanley and a former advisor to the Treasury on mortgages - had warned that house prices were too high back in 2006.

Today he said monetary policy is incapable of preventing asset bubbles and that needs to be done by forcing the banks to hold more cash.