Britain is unlikely to suffer from protracted deflation, Bank of England Deputy Governor Ben Broadbent said yesterday, adding his voice to colleagues who have played down the sharp fall in inflation seen in recent months.
Broadbent said that outside Japan, there was next to no modern precedent for advanced economies with floating currencies such as Britain suffering deflation for more than a year.
“The likelihood of a broad and protracted deflation, afflicting wages as well as prices, is pretty low,” he said.
Inflation fell to zero last month, reflecting the sharp drop in oil prices seen last year, and the central bank has said it is likely to dip into negative territory before returning to its 2 per cent target within a couple of years.
However, last week the central bank’s chief economist, Andy Haldane, surprised financial markets by warning that very low inflation could last longer than expected, requiring the central bank to cut interest rates from their record-low 0.5 per cent.
Since then other members of the BoE’s Monetary Policy Committee have been out in force, stating that they expected low inflation to prove temporary.
Broadbent said he expected inflation to bounce back in around a year’s time, saying that inflation was already running at more than 1 per cent, once the effect of lower oil prices and some other factors were stripped out.