Bank's Dale-economy has turned a corner, QE working

LONDON (Reuters) - Britain's economy has turned a corner thanks to unprecedented stimulus measures, weaker sterling and the end of the destocking cycle, but the recovery will be slow, Bank of England chief economist Spencer Dale said.

"The economy appears to have turned. And the most recent output data and business surveys suggest that we are likely to see positive growth in the second half of 2009," he said, according to a text of a speech to business leaders Thursday.

He said the economy was being supported by factors including fiscal measures and the weak pound, which has lost around a quarter of its value since June 2007 and hit a five-month low against the euro earlier Thursday.

"Even if output does expand in the second half of this year, for many families and businesses it may still feel like we are in the economic doldrums ... the recovery may be slow and protracted," Dale said, in comments similar to those from Governor Mervyn King published earlier.

Dale warned that much-needed structural changes to the global economy, banks' balance sheets and Britain's trade patterns could yet throw the recovery off track.

"But monetary policy can not -- and should not -- seek to prevent those adjustments. They are necessary for the long-run stability of our economy," he said.

Dale noted conventional measures of household balance sheets may exaggerate the deterioration, partly because they underestimate the benefits of lower house prices to younger people.

He said the Bank's QE program appeared to be working and played down policymakers' August split on whether to expand the program to 175 billion pounds or 200 billion pounds.

Dale said he had been wary of siding with Governor Mervyn King and two other Monetary Policy Committee members in voting for the higher figure because he was worried it could lead to an unwarranted rise in the price of some assets.

"It is important not to make too much of this difference; all members were of the view that a further degree of monetary stimulus was needed to meet the inflation target," he said. "My own judgement was that the uncertainty surrounding both the economic outlook and the effects of asset purchases made it difficult to have a strong view as to the relative merits," he said.

In a later interview with local radio, Dale confirmed the central bank would seek to raise interest rates from their record-low level of 0.5 percent when growth returned.

"I guess all I can say is that interest rates will go back up. Just as the economy recovers, interest rates will go back up," he said when asked about the impact of low interest rates on savers during an interview with BBC Radio Devon.

(Editing by Andy Bruce/Ruth Pitchford)