Interest rates 'must be kept low to prevent deflation' in 2015, warns leading economist

IPPR's chief economist has urged the Bank of England not to follow its custom of raising rates as the economy expands

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The Independent Online

Interest rates must be kept low during 2015 because deflation and stagnation pose a bigger threat than inflation, a leading economist warns today.

Tony Dolphin, chief economist of the Institute for Public Policy Research, has urged the Bank of England not to follow its custom of raising interest rates as the economy expands. Mark Carney, the Governor of the Bank, has suggested future interest rates will be linked to jobless figures, implying that if unemployment fell, interest rates would go up. But Mr Dolphin points out that although the jobless total is now below 6 per cent there has been no surge in inflation because so many people are working part time or are self-employed.

Writing for the blog Left Foot Forward, he claims: “The risks appear to be tilted more in favour of deflation, which could be devastating for an economy with high levels of debt, rather than a surge in inflation. Low wage and price inflation appear to be the more likely outcome and when they are combined with the likelihood of a tightening of fiscal policy over the next two years, the case for keeping interest rates at their current level look compelling.”