QE inflationary, rates could stay low

By Matt Falloon

LONDON (Reuters) - The Bank of England's stimulus efforts will eventually fuel inflation but the economic outlook means interest rates could stay at record lows for at least a year, the Conservatives said on Tuesday.

To combat the longest recession on record, the central bank has slashed interest rates to an all-time low of 0.5 percent and unleashed a 200 billion pound asset-buying spree.

Conservative leader David Cameron raised some eyebrows earlier this year by saying the bank could not "go on indefinitely printing money" -- departing from the convention for leading politicians to steer clear of talking about monetary policy.

Party officials since have stressed the Conservatives would not intervene more with the Bank of England than the current Labour government, should they win an election next year.

Conservative business policy spokesman Ken Clarke said he did not expect the Bank to raise interest rates for "12 to 18 months" and that inflationary pressures may not surface for "the next year or two" because deflationary pressures are so strong.

But he said the Monetary Policy Committee will have to reverse its unprecedented measures "sooner or later."

"We have to be prepared to stop it (inflation) when it starts happening," he told reporters at an event in parliament.

"I don't believe you can pour this amount of money into the economy without eventually having inflationary consequences."