UK not at risk of deflation, despite inflation plunge, says BoE's Miles
David Miles, a member of Bank of England (BoE) Monetary Policy Committee has said the drastic decline in British inflation does not pose a risk of deflation.
In his column on the Sunday Telegraph, Miles said that there's no need to take measures to stimulate the economy, despite calls for a looser monetary policy to be introduced in the wake of a sharp fall in inflation.
"This seemed wildly implausible just six months ago and I have my doubts even now,” Miles wrote, adding that cheaper food and fuel meant households were better equipped to handle their debts and were unlikely to postpone spending now.
"But it does mean that there is no great urgency in starting the process of moving monetary policy back towards a more normal setting."
British inflation dropped to a 12-year low of 1% in November and is expected to decline further in the coming months, strengthening expectations that the BoE will keep interest rates on hold at their record low of 0.5% long into next year.
Among other factors, a decline in oil prices has contributed to push down inflation and the slump in crude prices was down to weaker demand in emerging markets, Miles added.
“It is relevant here, and in fact helpful, that the UK exports relatively little to China –- we get the benefit of the boost to real incomes from lower commodity prices that weaker Chinese growth brings but we don’t pay much of a price in terms of weaker exports,” he wrote.
"The current reverse situation is partly why I see fewer reasons for worrying about deflation risks than if the undershoot of the 2% inflation target reflected purely domestic factors.”