THE United Kingdom is a long way from the kind of deflation that could be damaging a policy maker at the Bank of England has said.
Professor David Miles, who sits on the bank committee that sets interest rates, said while inflation was very low in the UK there was no concern the country is suffering the kind of slump in prices that could hit the economy.
In a speech to the University of Edinburgh business school yesterday, Mr Miles made clear he does not think the current low rate of inflation in the UK warrants additional stimulus, such as pumping money into the economy through quantitative easing.
The European Central Bank has finally decided to use such measures to boost the flagging Eurozone.
Mr Miles, an external member of the bank's Monetary Policy Committee, said the fall in inflation, to a low of 0.5 per cent in the year to December, was the result of external factors such as the slump in oil prices since June.
"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 told Reuters.
Added: "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."
The Governor of the Bank of England, Mark Carney, said recently lower inflation could mean interest rates may stay low for longer.
At the latest meeting of the bank's Monetary Policy Committee earlier this month January members voted unanimously to keep the base rate on hold at 0.5 per cent.
In his speech in Edinburgh Mr Miles highlighted the 50 per cent fall in oil prices in the year to January.
He said:"One should not expect a central bank to be able to fully offset the impacts of such huge swings in commodity prices on current inflation - and I believe it would be highly undesirable if they tried."
He said having a flexible inflation target which allows policy to be set so as to return it to the favoured level over several quarters rather than immediately, makes sense.
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