* BoE chief economist spies recovery but headwinds remain
* Dale warns of possible asset price spike due to QE
* Plays down split in MPC over level of stimulus
(Adds details)
By Matt Falloon and Fiona Shaikh
LONDON, Dec 2 (Reuters) - Britain appears to be emerging from recession and, although headwinds remain, policymakers need to be wary of driving up asset prices with loose policy, Bank of England Chief Economist Spencer Dale said on Wednesday.
But Dale said there was no strong evidence to suggest that the BoE's quantitative easing efforts were having an undesired effect on prices yet and played down any split within the Monetary Policy Committee over the level of stimulus needed.
Last month, Dale voted against the BoE's decision to raise its asset purchase scheme by 25 billion pounds to 200 billion pounds. He wanted to keep QE at 175 billion pounds, while external member David Miles wanted a 40 billion pound rise.
"The economy appears to have turned," Dale told a business audience in eastern England.
"There is a range of evidence from business surveys, from the Bank's regional agents and from recent indicators, that the economy has begun to stabilise and that we are likely to be moving into a period of renewed expansion."
Britain's economy has suffered its longest recession on record, contracting 0.3 percent in the third quarter of this year although there have been some signs that growth may return before the end of the year.
Dale said fiscal and monetary stimulus, along with a weaker pound, was helping to support the recovery but cautioned that the economy faced headwinds from necessary structural adjustments, with credit conditions likely to remain tight.
"The recovery in the level of economic activity is likely to be relatively slow," he said, adding that a considerable reduction in the fiscal deficit -- set to climb above 12 percent of gross domestic product this year -- was needed.
INFLATION RISKS
Inflation could rise above three percent early next year, Dale said, forcing BoE Governor Mervyn King to write an explanatory letter to the government, but the spike should be temporary.
"The downward pressure from the persistent margin of spare capacity is likely to cause inflation to fall back below the two percent inflation target, although this pressure should gradually fade as the economy recovers," he said.
Echoing King's comments to lawmakers last month, Dale said it would be a mistake to read too much into any split on the MPC.
"It is important not to make too much of these differences; all MPC members -- myself included -- were of the view that a significant degree of monetary stimulus needed to be maintained in order to meet the inflation target," he said.
But Dale said his preference was to grow the economy "a little less rapidly" to avoid the possibility that quantitative easing might lead to an unwarranted increase in asset prices.
"I do not think there is any strong evidence to suggest that any of the increases in asset prices seen to date are out of line with the improving economic outlook and the desired impact of our asset purchase programme," he said.
"Rather, I was conscious that the current stance of monetary policy ... increases the likelihood that asset prices may move out of line with their fundamental values. It is a risk that we need to be alert to." (Editing by Stephen Nisbet) ((UK Economics desk, uk.economics@reuters.com, Tel: +44 207 542 1894))