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UPDATE 1-BoE's Sentance says UK economy has returned to growth

Published 01/21/2010, 11:59 AM
Updated 01/21/2010, 12:03 PM

* Sentance: UK economy has returned to growth

* Dec CPI jump due to VAT and oil volatility, will fade

* BoE has done a lot of QE already, still early for results

* To hear audio interview: http://r.reuters.com/bub94h

(Adds comments to regional news website, detail)

LONDON, Jan 21 (Reuters) - Britain's economy has returned to growth, and last month's surge in inflation is due to temporary factors that will fade away, Bank of England policymaker Andrew Sentance said in an interview published on Thursday.

A first official estimate of fourth-quarter GDP growth will only be released next Tuesday, but Sentance's comment adds to remarks from BoE Governor Mervyn King on Tuesday that the economy is now recovering -- a view shared by most private-sector economists.

Britain has suffered 18 months of recession, and the central bank has bought nearly 200 billion pounds ($326 billion) of gilts with newly printed money since March in an effort to lift growth. "It's early days to see the full impact of quantitative easing, but certainly the fact that the economy has stabilised and has begun to grow again is a positive signal," Sentance told the Yorkshire Post.

The BoE is on track to reach its asset purchase target for QE in the next few weeks and most analysts do not expect it to extend the scheme.

Sentance, considered one of the more hawkish members of the central bank's nine-member monetary policy committee, said the sharp rise in inflation in December showed no sign of derailing inflation expectations.

The record jump in inflation to a nine-month high of 2.9 percent had been driven by changes in value-added tax and oil price volatility, he said.

"The key thing on inflation is that people continue to have confidence in the medium-term view that inflation will be low and stable at around about the 2 per cent rate once we get through the various fluctuations," he said.

"There is quite a bit of evidence that that confidence is still there, so it's important that we try and look through some of the fluctuations and the short-term factors affecting inflation."

In separate remarks to a regional business news website, Sentance broadly reiterated the views in the minutes of the BoE's January policy meeting, which were published on Wednesday.

"There is still nervousness around about the pace of the recovery -- there are headwinds from the state of the banking sector and the public-sector deficit -- but I detect a lot of resilience and confidence," he told TheBusinessDesk.com.

Sentance did not repeat a remark he made earlier in the month that the BoE was close to deciding it had done enough QE, but he did comment that a lot of money had been spent buying assets already.

"There is a recognition that we have already provided quite a lot of support and the additional money into the economy through quantitative easing," he said.

(Editing by Ron Askew) (Reporting by Christina Fincher and David Milliken)

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