MPC's Dale: Inflation will fall to 3% by March

Bank of England chief economist Spencer Dale has predicted inflation will fall to around 3% early next year and is confident the latest round of quantitative easing will prop up the economy.

Dale told Bloomberg he expects inflation to fall to around 3% in Q1 2012 as the impact of VAT and increasing oil prices drop out of the equation.

"I expect to see inflation fall sharply next year to hopefully the low 3s (3%) by around March," he said.

Dale said the squeeze on household income will ease in line with falling inflation. But he could not say how quickly prices will continue to decline after Q1 next year.

Yesterday, the Office for National Statistics said UK CPI inflation declined from 5% to 4.8% in November, in line with forecasts. The Bank of England's inflation target is 2%.

Dale also said he is confident the Bank of England's latest round of quantitative easing - which saw it increase its asset purchase programme by £75bn in October - will help support the economy in much the same way as when first introduced in 2009.

But he cautioned quantitative easing is no "magic wand" and said it will take time for its positive impact to trickle through to the economy.

The Bank is expecting flat growth for next few quarters, after which growth will hopefully pick up, he added.

Meanwhile, in reference to the ongoing eurozone sovereign debt crisis, Dale said domestic monetary policy can play only a limited role in insulating the UK from external shocks.