UK inflation plunge does not pose deflation risk - BoE's Miles
LONDON (Reuters) - The sharp fall in British inflation does not pose a risk of deflation and there is no need to take more measures to stimulate the economy, a policymaker at the Bank of England said in a newspaper column on Sunday.
David Miles, who argued forcefully for action during the financial crisis as one of the nine rate-setters at the BoE, said in The Sunday Telegraph that some people were arguing that the plunge in inflation showed the need for a looser monetary policy.
"This seemed wildly implausible just six months ago and I have my doubts even now,” he said, explaining that cheaper food and fuel meant households were better able to handle their debts and they 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 fell to a 12-year low of 1 percent in November and is expected to weaken further in the coming months, reinforcing expectations that the BoE will keep interest rates on hold at their record low of 0.5 percent deep into 2015.
Miles said it was possible that he would not vote for a rate rise before his term at the Bank ends in August and he pointed to expectations in financial markets that the first rate hike would only come later next year.
Part of the reason for the recent plunge in world oil prices, which has pushed down inflation, was weaker demand in emerging economies, especially China, he said.
“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,” Miles wrote.
The situation was the reverse of a few years ago, when booming demand in China pushed up commodity prices and saddled Britain with high inflation, hurting living standards.
"The current reverse situation is partly why I see fewer reasons for worrying about deflation risks than if the undershoot of the 2 percent inflation target reflected purely domestic factors,” he said.
(Reporting by William Schomberg; Editing by Greg Mahlich)
