LONDON: The Bank of England should keep interest rates at their record low of 0.5% in 2015 to avoid the risk of stagnation and deflation as the country faces continued cuts in public spending, a left of centre think tank has warned.
The Institute for Public Policy Research (IPPR) called on Bank governor Mark Carney to freeze, do not squeeze to avoid hurting household living standards and creating a deflationary spiral.
The IPPR’s chief economist Tony Dolphin said that even with unemployment at 6%, falling oil prices and sluggish wage growth meant there was still no reason to expect a significant increase in inflation over the course of 2015, and therefore no need for a rise in interest rates to rein in prices.
Mr. Carney indicated when he first arrived at Thread needle Street in 2013, that the base rate could be expected to rise from its historic low after employment fell below 7%. The forward guidance policy was later adjusted, as the feared inflationary pressures from wage growth failed to materialise despite falls in the jobless total.
The greatest risk to the economy is stagnation and deflation caused by rapid rate rises at the same time as both major political parties are committed to cuts in spending, he said.