BoE's Weale eyes bigger inflation impact from oil price fall

LONDON (Reuters) - The past year's sharp oil price fall may have a longer-lasting effect on British inflation than the Bank of England assumes, but the central bank would be wise to look through such one-off effects, a BoE policymaker said on Thursday.

Martin Weale, who last year voted in vain for the central bank to start to raise interest rates, said the BoE's Monetary Policy Committee should not be distracted by the drop in oil prices, even if it has a short-term impact on inflation that is bigger than expected.

"The Committee is quite right to let the short-term

effects of external shocks feed into inflation," Weale said in a speech to economic forecasters in London.

"To do otherwise, and tighten or loosen aggressively, would do little to help inflation in the short term, but would risk a lot with unwanted gyrations in output. This would -- with good reason -- be highly unpopular with the public."

British consumer price inflation dipped into negative territory for the first time since 1960 in April, largely due to a 40 percent fall in oil prices since their peak last year.

BoE Governor Mark Carney has said he expects inflation to recover rapidly from around the end of this year.

But Weale said he thought there was a "downside risk" to the BoE's most recent forecast of inflation of 1.6 percent by the end of next year.

"By early 2017 I believe the effect will have faded. So the best response is not to worry about this risk should it materialise; after all, policy is set now in order to deliver inflation at target in two years' time, by which time the effect is likely to have gone."

(Reporting by David Milliken; editing by William Schomberg)