Cut rates or risk deflation - Julius

Interest rates should be cut immediately to protect Britain from the threat of deflation, a former member of the Bank of England's monetary policy committee will warn today.

In a Channel 4 interview to be shown tonight, DeAnne Julius will say the Bank must act to prevent inflation falling any further. It is the toughest criticism of the Bank yet by a former member of the MPC.

"In the UK, we've been too focused on inflation, so we've been too slow bringing interest rates down," she says.

"We don't have a lot further to sink before we get dangerously close to deflation."

Ms Julius's dovish stance was vindicated by figures showing tame inflationary pressures at the factory gate and a further sales slowdown on high streets.

Data from the office for national statistics showed that factories raised their prices by 0.1% in September. Moreover, the British Retail Consortium reported that sales growth eased to 3.4% in the 12 months to September.

"Growth in like-for-like sales has averaged 3.5% over the last six months, but ran at 6.2% in the previous six months," said Bridget Rosewell, chief economic adviser to the BRC. "This illustrates how significant a fall in sales growth there has been."

Figures out today are expected to show underlying inflation at 2% in September, up from 1.9% in August but still well below the 2.5% target.

Ms Julius will warn that out right deflation is now a bigger threat to the world's leading economies than inflation.

With companies and households overburdened with debt, falling prices could have dangerous implications for the economy. Inflation is often good for borrowers because it erodes the value of their loan.

"Corporate and consumer debt burdens are very high, the stock market is depressed, so it's very hard for companies to raise money for investment, even if they did want to invest," Ms Julius says.