By politics.co.uk staff
Britain's economy will suffer an "anaemic" recovery from recession as higher inflation and unemployment blight prospects for a return to strong growth, the Bank of England's chief economist has warned.
Spencer Dale said living standards would rise only "minimally" while the VAT hike from 17.5% to 20% would prevent inflation returning to its two per cent target before the end of 2011.
Speaking in an interview with the Independent newspaper, Mr Dale warned that the outlook for growth and inflation had "deteriorated" in the last two months - partly as a result of the austere measures taken in the emergency Budget.
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"We've also seen tensions in the financial markets increase, related to concerns about sovereign debt issues in Europe," he said.
"That has also affected the ability of banks and companies to raise cash. There's also the greater question of how things develop as countries around the world accelerate their fiscal consolidation plans."
The Bank of England has been tasked with ensuring inflation remains at two per cent since 1997 and Mr Dale made clear he remains committed to fighting its "evils".
"It adds to uncertainty, it destroys value of hard-earned cash and reduces the efficiency of the economy. We have to be incredibly vigilant," he said.
He said the "traditional balancing act" between keeping inflation down without deterring more growth had become more "acute", comparing it to the situation in 2008 when "substantial downside risks to growth" existed alongside "upside risks to inflation staying above target and feeding through into wages and price setting".