Besley Says BOE Rate Must Be `Suitable' Until Inflation Eases

By Svenja O'Donnell

Aug. 19 (Bloomberg) -- Bank of England policy maker Timothy Besley said the central bank's benchmark interest rate should be at a ``suitable level'' until inflation eases.

``This spiral has to be nipped in the bud,'' Besley wrote in an article published in the Sun newspaper today. ``That means having interest rates at a suitable level until the threat of higher inflation has passed.''

It would be ``dangerous and damaging'' to allow inflation to get out of control, said Besley, who voted for a rate increase last month. The Bank of England has left its key rate at 5 percent since April to deter workers from demanding higher pay to keep pace with an increase in living costs.

Inflation, stoked by higher oil and food costs, reached a decade-high of 4.4 percent in July.

Besley said that, ``all being well,'' inflation will slow next year and will be ``much closer'' to the bank's 2 percent target by the end of 2009. ``But that will only happen if people don't chase inflationary wage increases,'' said Besley.

To contact the reporter on this story: Svenja O'Donnell in London at sodonnell@bloomberg.net.