Bean says economy facing most challenging time since 1990s

By Katherine Baldwin and Golnar Motevalli

LONDON (Reuters) - The economy is facing its most challenging time since the early 1990s or even earlier as policymakers grapple with two conflicting risks, Bank of England Deputy Governor Charlie Bean said on Wednesday.

In a written submission to parliament's Treasury Committee in his first week as deputy governor, Bean said it will be hard to get inflation to meet the 2 percent target without needless volatility in output.

"There is no doubt that the UK economy presently faces the most challenging set of circumstances since at least the early 1990s and possibly earlier," said the central bank's former chief economist.

The pound fell and interest rate futures extended gains after Bean's comments on the perception that he was in no hurry to raise interest rates to bring inflation down.

The parliamentary committee later issued a statement saying it had unanimously endorsed the appointment of Bean as the central bank's deputy governor.

Bean said policymakers were having to face up to the two competing risks of higher oil prices and the ongoing ructions of the credit crunch.

"We are faced with two substantial shocks of unknown impact and duration: the de-leveraging that is underway in financial markets and the associated tightening in the availability of credit; and the relentless rise in oil and other commodity prices.

"Both these shocks depress activity, but have conflicting effects on inflation."