BOE signals that it won't tighten policy for at least the next year

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LONDON - The Bank of England signaled Wednesday that it won't tighten policy for at least the next year, as the private and public sectors seek to run down their debts and credit conditions remain tight.

In its quarterly Inflation Report, the BOE's Monetary Policy Committee said economic recovery in the U.K. will be gradual, with the level of output not regaining its pre-crisis levels until late 2011.

It noted there is a range of views among MPC members about the impact of various factors on inflation, and stressed the unusual degree of uncertainty surrounding its forecasts.

"It is likely that credit conditions will remain restrictive for some time
and that the need to strengthen public and private sector finances will weigh on spending," the MPC said. "A degree of spare capacity is likely to persist over the forecast period, although its extent will depend on the strength of the recovery and the evolution of supply, both of which remain highly uncertain."

Based on the assumption that it kept interest rates unchanged and maintained its stock of asset purchases, the MPC said inflation is likely to stand just below its 2.0% inflation target in two years' time.

If rates are hiked as markets expect, to 1.0% by the end of 2010, rising to 3.5% by late 2012, inflation will still be far below target in around three years, but risks by that time will be broadly balanced, it said.

Official output data are likely to be revised up a little in future, it also
said.