BOE Governor Says Deflation Temporary in UK

Mark Carney, the governor of the Bank of England, has sought to allay fears that Britain faces a 1930s-style deflationary spiral after inflation fell last month to 0.3%, saying that the strength of the UK recovery meant inflation would return to its 2% target within the next two years.

In a speech to business leaders in Sheffield, Carney said that despite being buffeted by global forces pushing down prices, the return of inflation-busting wages would push up domestic demand and prices, forcing Threadneedle Street to raise interest rates.

But Carney said inflation was likely to sink further over the coming months, delaying a much expected rise in interest rates and forcing the Bank’s monetary policy committee to be alive to the possibility of a deflationary spiral becoming entrenched.

He said the cause was the steep fall in oil prices and the rising value of the pound allied to weak growth in China and the eurozone.

“While the MPC can be expected to look through one-off shocks, it may be appropriate to take into account persistent external deflationary forces arising from the combination of continued foreign low inflation and the protracted effects of sterling’s strength on the prices facing UK consumers if those forces were to intensify,” he said.

via The Guardian

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