EDINBURGH (Reuters) – The sharp fall in British inflation does not raise the risk of damaging deflation and the Bank of England does not need to resume buying government bonds in response, a policymaker at the central bank said on Thursday.
David Miles, who was one of the BoE’s most vocal supporters of stimulus to help the economy during and after the financial crisis, also said the slowing of inflation meant there was no great urgency to start raising interest rates.
Britain’s inflation rate touched 0.5 per cent in December, according to the consumer price index, its lowest level in more than 14 years.
The fall in British inflation was more a reflection of the plunge in global commodity prices, such as oil, and the effect of a strengthening of sterling last year than of deflationary forces in the country’s economy, Miles said in a speech.
“So although actual inflation rate is now very low, and might temporarily dip down to zero and turn slightly negative, this is a long way from the sort of deflation trap that is really worrying,” he said.
“This fall in inflation, rather than increasing the burden of debt in a way that can become self-reinforcing in a downwards spiral, is boosting the disposable income of households and making the burden of debt easier.”A