Issuing more central bank loans will not necessary increase production levels to cope with the additional demand, and could instead simply pass on the price increases to customers, Bank of England Chief Economist Spencer Dale has warned.

In a speech that comes just days after it was revealed BoE Governor voted in favour of further quantitative easing (QE), Dale said such a move would not necessarily be a wise decision in an economy with limited room for manoeuvre.

"The argument that it is possible to grow the economy without much increase in inflation is seductive and enticing. It's like being offered a free lunch," he said.

He contiued: "Wage growth has moderated broadly as we would have expected given the rise in unemployment. And there does not appear to be a significant margin of spare capacity within companies."

He suggested that instead that the government could concentrate on minimising "credit frictions" that limit lending from banks to households and small businesses.

NR

Related share prices