Speaking in the wake of the Bank’s Inflation Report, Carney said deflation is 'likely' come spring, while he expects the inflation rate to stand close to zero for the rest of the year.
He said: “The MPC is vigilant to the risks of disappointing global growth or any signs that low inflation begins to affect inflation expectations and wage growth, and therefore becomes self-reinforcing.
“Were these downside risks to materialise, the Committee could adjust the pace and degree of Bank Rate increases, expand the asset purchase Facility, or cut Bank Rate further towards zero.”
Carney has written a letter to Chancellor George Osborne explaining why the inflation rate has fallen so low, which he explained with sharp falls in food and energy prices.
The Governor said inflation must return to its 2.0% target within two years once the impact of energy and food price movements subside.
David Whittaker, managing director of Mortgages for Business, said: “The downward pressure on inflation caused by falling oil and food prices has increased consumer spending power.
“With more money in consumers’ pockets the UK’s economy should see a much needed short-term boost especially given the healthy labour market –unlike in the eurozone.
“With such weak inflation the prospect of a rise in the Bank base rate slips further away and we don’t expect this to happen till at least Q2 or Q3 of 2016.
“While some borrowers may be tempted to wait for lenders to drop their rates further, now is the time to fix.”
