Bloomberg
The Bank of England isn’t under pressure to raise UK interest rates as inflation slides further below its target, policy maker David Miles said.
“There is no great urgency in starting the process of moving monetary policy back towards a more normal setting,” Miles wrote yesterday in the Sunday Telegraph.
Inflation slowed to the least in more than a decade in November with consumer-price growth dropping to 1%, half the Bank of England’s 2% target. A breach below 1% would force Governor Mark Carney to write an explanatory letter to the government. While the current undershooting of the inflation target “is not ideal,” Miles said it doesn’t merit an easing of monetary policy either.
The main reason inflation has fallen is the drop in global commodity prices and he doubted people would postpone purchases because of concern deflation would mean prices would be lower in the future.
“So I don’t think that lower inflation than seemed likely six months ago means that more expansionary policy is now needed,” Miles said. “I see fewer reasons for worrying about deflation risks than if the undershoot of the 2% inflation target reflected purely domestic factors.”
Miles, who joined the Monetary Policy Committee in 2009 and has never overseen a change in interest rates, said it is “possible” he may reach the end of his term in August without ever voting to raise the benchmark rate. In June, he had said he expected to avoid setting the record as the first MPC member to have never voted for a change.
He also said the UK benefits from the boost to real incomes from lower commodity prices. While a weaker Chinese economy — one of the reasons for the oil slump — suggests less trade, the UK exports relatively little to China, he said.