LONDON--A senior Bank of England official said Friday the
chances of a damaging bout of falling prices in the U.K. are
slim.
Ben Broadbent, the central bank's deputy governor for monetary
policy, said a recent slowdown in annual inflation in the U.K. has
been driven largely by the fall in oil prices and that
consumer-price inflation is likely to rise "quite steeply" in early
2016.
He said data suggest wage growth in Britain is creeping up and
should rise further as unemployment falls, adding to price
pressures even if global inflation remains subdued.
Moreover, he said that a sustained spell of falling prices,
known as deflation, is extremely rare in developed economies with
the means to set their own monetary policies and floating exchange
rates.
"The likelihood of a broad and protracted deflation, afflicting
wages as well as prices, is pretty low," Mr. Broadbent said in a
speech at Imperial College Business School, according to a text of
remarks prepared for delivery.
Mr. Broadbent's remarks offer new evidence that most BOE
officials are relatively unperturbed by the current low level of
inflation in the U.K. and that the central bank remains on course
to raise interest rates from historic lows early next year.
Investors expect the BOE to lift its benchmark interest rate from
0.5% in the first half of 2016, according to interest-rate
derivatives that hug the BOE's benchmark.
Annual inflation in the U.K. was zero in March, according to
official data, its lowest level for more than 50 years. But BOE
officials expect price growth to accelerate back to its 2% target
over the next two years as the economy improves and last year's
fall in the oil price drops out of the consumer-price inflation
calculations.
Still, Mr. Broadbent acknowledged that policy makers need to be
alert for signs that feeble price growth is rippling through into
lower wage settlements, which could delay inflation's rise back
toward 2%.
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