Savers might have to wait a much longer time for any rise in cash interest rates, after the Bank of England governor Mark Carney said he was not indifferent to the prospect of 0 per cent inflation.
Mr Carney was being questioned by the House of Lords’ economic affairs committee when he predicted inflation would fall to 0 per cent in the coming months and stay there for much of the rest of 2015.
Lord Lawson, a former chancellor, questioned Mr Carney on whether he was concerned about this.
Mr Carney responded: “We are looking through the current low level of inflation because it is largely caused by temporary factors, and we can boil that down to a 50 per cent reduction in the price of oil and a knock-on effect to petrol, food and energy prices.
“This probably accounts for about four fifths of the gap between where inflation is and the target.
“It is a one-time adjustment and the economy moves on. That’s where I am indifferent.
“We are not indifferent to the prospect of inflation being at 0 per cent over the horizon – which we can affect, so we wouldn’t be indifferent if we felt inflation was going to be at 0 per cent in two or three years from now.”
Inflation fell to 0.3 per cent in January, which is the lowest level since records began.
Mr Carney also warned against using monetary stimulus such as cutting interest rates to tackle low inflation.
He said: “The one thing we cannot do and the thing that would be extremely foolish is to try to lean against this oil-price fall today to try to provide extra stimulus and somehow get inflation up.
“The impact of that extra stimulus would happen well after the oil price fall had moved through the economy and we would add unnecessary volatility.”
He added that the Bank of England thought bringing inflation up over its proposed horizon was consistant with gradually raising interest rates.
Anna Bowes, co-founder of Bath-based savingschampion.co.uk, said: “It is bleak times for savers, there is no getting away from it.
“We suggest a more balanced approach to savings – so in the past you might have lumped all your money in one place, but it is better to spread it around in easy-access, high-interest and fixed-rate accounts so at least some of your money is accessing higher interest rates.”