Bank of England Monetary Policy Committee member David Miles has sought to quash fears over deflation, saying any foray into negative territory would be short-lived and shouldn’t lead to rate cuts.
Speaking in an interview with the Financial Times, Miles, one of the more dovish members of the MPC, said that he expected the rate of inflation to increase by the end of 2015, and that he didn’t expect deflation to have an adverse effect on spending or investment.
Miles’s comments come after another MPC member, Andy Haldane, said that interest rates, currently at a historic low of 0.5 per cent, were just as likely to be cut as hiked. That a fellow MPC member should make such a statement shows Haldane has not managed to persuade the rest of the MPC over the potential for a rate cut.
A rate cut in reaction to the current 0 per cent inflation rate would be a “knee-jerk reaction,” said Miles.
What I don’t see at the moment is persistent underlying deflationary pressures in the UK – they are conspicuous by their absence.
With the situation as it is, he indicated, he supported the official line: rate rises, when they occur, will be gradual and limited.