Bank's Miles says no need for interest rate hike yet

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July 1, 2010 8:28 PM EST

UK inflation is "uncomfortably" high, but there is no need for an immediate hike in interest rates, Bank of England policymaker David Miles said.

"My own judgement is that we haven't yet got to the point at which a tightening in monetary policy is the right thing to do," Miles told the Daily Mail newspaper.

Miles said inflation had been particularly volatile over the last year, but the latest data suggested inflation was heading back towards the 2 percent target level.

"We were pretty substantially under the target level. We are uncomfortably above the target level now."

"The latest inflation data suggests we are slightly moving back towards the target level," he said.

Interest rates have remained at a record low of 0.5 percent since March last year, but inflation hit a 17-month high of 3.7 percent in April, contrasting with a downward trend in the U.S. and the euro zone.

Fellow Bank policymaker Andrew Sentance unexpectedly voted for a rise in interest rates last month, but Adam Posen said in a speech on Wednesday there was too big a risk the UK would return to recession for rate rises to be appropriate now.

Miles said he was more optimistic than a few months ago but warned a setback in the euro zone could still harm Britain's recovery.

"Banks throughout Europe are finding it more difficult than they might have hoped a few months ago to raise funding and they are being pushed towards shorter maturity funding -- all of which is worrisome."

"These remain real concerns and the UK -- being a very open economy, having a large banking sector -- can't isolate itself from the risks here."

(Reporting by Caroline Copley; Editing by )

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