The Bank of England could still cut British interest rates again if needed and higher inflation in the short-term is not a barrier for action, Monetary Policy Committee member Marian Bell has told Reuters in an interview.
The BoE stunned markets in February by chopping interest rates to a 48-year low of 3.75% because of the prospects for weaker demand both in Britain and abroad as the threat of war with Iraq clouded the economic outlook.
Data last week, however, showed that British inflation hit a five-year high of 3% last month and the MPC sees it rising even further above its 2.5% target in the coming months because of sterling's fall, soaring oil prices and rising local taxes.
And expectations of further cuts in British borrowing costs fell sharply last week after minutes of the March MPC meeting showed the nine-member group even discussed reversing the February move before voting to keep policy unchanged.
'But there clearly would be room to reduce rates further if it was judged necessary to keep inflation in line with target in the medium term,' Bell told Reuters.
Bell said that the rise in inflation was due to one-off factors, and so was not likely to be a problem once the effects fell out of the annual rate in a year.
