Inflation will not help the UK recovery, that’s the message from the Bank of England’s deputy governor.
Charles Bean said that it was ‘severely misguided’ to assume that a rise in prices and lower interest rates would help Britain reduce its debt, in an article he wrote in the Telegraph.
His comments criticised some experts, who he claims have suggested that a rise in prices would help the UK economy recover.
This comes after the OECD said last week that interest rates should rise to 3.5 per cent by the end of 2010 in order to combat spiraling inflation.
According to the Office of National Statistics, the Consumer Price Index rose to 3.7 per cent last month, well above the Government’s 2 per cent target.
He writes: “Some people have suggested that a bit of extra inflation might be a good thing. After all, wouldn't it help to get the economy going by reducing the real value of public and private debt? This is misguided.
“Aside from the dubious morality of redistributing wealth from savers to borrowers, past experience shows that a bit of inflation has a nasty habit of turning into a lot of inflation.”
Although he says he is not convinced inflation will persist, he is not in favour of suggestions that continued inflation is a good thing as a means of reducing private and public debt.
Instead he says the Government and the Bank of England should focus on bringing inflation in line with the 2 per cent target: “The economic outlook is already uncertain enough. Succumbing to the false promise afforded by higher inflation would only worsen our present predicament. Rather, the best contribution that the MPC can make to the recovery is to keep inflation on track to meet the 2pc target in the medium term.”
Last month’s inflation rise was blamed on increased fuel prices and VAT increase, which pushed up the Consumer Price Index, which measures UK inflation rates.
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