Rates can stay lower for longer - Bank of England exec

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Interest rates can be kept at their current record low level for longer than first thought, the Bank of England's deputy governor has said.

Jon Cunliffe said weak pay and inflation together with slower UK growth and deteriorating prospects for the global economy meant the BoE should remain "cautious".

He also warned the financial crisis may have permanently depressed pay.

The BoE has kept interest rates at 0.5% since March 2009.

"The softening in the pay and inflation data, together with the weaker external environment, for me implies that we can afford to maintain the current degree of monetary stimulus for a longer period than previously thought," Sir Jon said in a speech in Cambridge.

The deputy governor is a member of the nine-strong Monetary Policy Committee (MPC) which votes on interest rates each month.

He also said since the financial crisis, workers appeared to be resigned to accepting lower pay.

"The sharpness of the recession and the years of austerity that have followed it, appear to have caused a shift in the psychology of UK workers.

There appears, for the present at least, to be an acceptance that pre-crisis pay levels are no longer achievable," he said.

Sir Jon is the latest in a series of Bank officials to suggest rates should stay low for now.

Minutes from the MPC's October meeting, when members voted 7-2 to hold interest rates at 0.5%, said that for most members there was "insufficient evidence" of inflationary pressure to raise rates.

Most economists are expecting the MPC to start raising rates around the middle of next year.

"The likelihood of a near-term interest rate hike from the Bank of England is rapidly receding," said IHS Global Insight chief UK and European economist Howard Archer.

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