BOE's Miles Says No Urgency to Lift Interest Rates in UK

        By Jason Douglas
        A slowdown in inflation in the U.K. doesn't mean the Bank of England needs to undertake fresh stimulus, but does give it more room to leave interest rates on hold, one of the central bank's top policy makers said Thursday.
        David Miles, a member of the BOE's rate-setting Monetary Policy Committee, said in a speech that cooling inflation is largely the result of tumbling prices for oil and food and isn't a sign that the U.K. is entering a dangerous "deflation trap," where persistent falls in prices weigh on growth and make it harder for firms and households to service their debts.
        "I don't think that lower inflation than seemed likely six months ago means that expansionary policy is now needed. But it does mean that there is no great urgency in starting the process of moving monetary policy back towards a more normal setting," Mr. Miles said in a speech at the University of Edinburgh, according to a text of his remarks.
        Mr. Miles was speaking just hours before the European Central Bank is expected to announced a fresh burst of stimulus to revive growth and raise inflation in the eurozone, underscoring how central banks are increasingly charting different paths in response to shifts within the global economy.
        Annual inflation in the U.K. cooled to 0.5% in December and officials say the rate may dip briefly below zero in the coming months before accelerating again later in the year. But Mr. Miles said that far from foreshadowing the deflation that threatens the eurozone, the dip should instead fuel growth in the U.K. as consumers reap the benefit of lower prices. Unlike the eurozone, the U.K.'s economy has grown strongly in the past year and is expected to expand 2.7% in 2015, according to the latest forecasts from the International Monetary Fund.
        The bulk of Mr. Miles's speech focused on differences between how monetary policy works on paper and how it works in practice.
        The BOE bought billions of pounds of U.K. government bonds in a three-year stimulus push known as quantitative easing. Mr. Miles said the policy worked through economic mechanisms that aren't always featured prominently in standard textbooks, such as so-called portfolio rebalancing effects, or nudging investors to exchange safer assets for riskier ones.
        Investors now expect the BOE to raise interest rates in the middle of 2016.
        Write to Jason Douglas at Jason.Douglas@wsj.com
        (END) Dow Jones Newswires

        January 22, 2015 04:00 ET (09:00 GMT)

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