Bank of England's Governor warns of 'clear and present danger' of low prices

Bank of England Governor Mark Carney says low prices should be enjoyed while they last (AFP) (AFP)

Lingering low prices pose a “clear and present danger” as households struggle under a higher debt burden, the Bank of England's Governor Mark Carney warned yesterday.

In a speech in Sheffield, Mr Carney said “there is a risk that the combination of persistently low global inflation and the strength of sterling could weigh on prices here for some time”. The Bank’s official inflation benchmark, the consumer prices index currently stands at just 0.3 per cent and could soon shift into negative territory.

He played down the risks of “potentially dangerous” entrenched deflation but added that there were risks to households and firms from a rising real terms debt burden from a prolonged period of low prices. “There would be … a more clear and present danger arising from the balance sheets of households and firms should deflation persist,” he warned.

The Bank stuck to its forecasts that inflation will return to target within two years - and it will look through plunging oil prices - but Mr Carney’s dovish tone eased the pound below $1.50 against the dollar.