David Miles of the Bank of England has said falling inflation will mean consumers will have more money, but the plans for rising interest rates are not to change.
The plans to increase interest rates are not being postponed despite the falling inflation. Miles, a member of the Monetary Policy Committee, has warned that the demands to pump more money into the economy to reduce the threat of deflation did not ‘add up’.
The falling price of oil means inflation is likely to remain below the Bank of England’s 2% target. Miles has said that there was no case for relaxing the monetary policy and adding to the £375 billion stockpile of asset purchases.
It is said that low inflation, which has brought food prices down, has enabled British households to deal with their existing debt.
It appears that Britain is beginning to recover; as weekly earnings are moving ahead of the Consumer Price Index (CPI). Experts are forecasting that if this continues and the difference between pay and inflation widens further, the public sector deficit might be reduced.
This is then likely to enable households to be more sustainable and steer the economy to recovery.