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Carney confident higher wages will prevent deflationary spiral

Bank of England

Bank of England Governor Mark Carney has sought to ease concerns that Britain faces a deflationary spiral after inflation fell to 0.3% last month, claiming the strength of the recovery meant inflation would return to its 2% target within the next two years He said that despite global forces pushing down prices, the return of inflation-busting wages would push up domestic demand and prices, forcing the Bank to raise interest rates. However, Mr Carney said inflation was likely to sink further over the coming months, delaying a rise in rates and forcing the Monetary Policy Committee to be aware of the possibility of a deflationary spiral becoming entrenched. The pound fell yesterday after Carney signalled he may delay raising rates to keep sterling from strengthening too far and damaging growth prospects. He warned that if the pound appreciated too much it could hurt exports and stoke deflation by driving down wages.

 

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