The governor of the Bank of England has suggested that interest rates may need to be cut further.
Writing an open letter to chancellor Alistair Darling, Mervyn King explained that this month's cut in the official base rate from three per cent to two per cent was prompted by the risk of deflation.
And with the consumer prices index (CPI) rate being found to have slowed again last month, he said: "Inflation throughout much of 2009 is likely to be below target and there is a risk that below-target inflation could persist for a while."
Cutting interest rates is one of the measures the Bank takes to reduce the threat of deflation and can lead to lower charges for secured and unsecured loans.
According to the Office for National Statistics, the CPI was at 4.1 per cent in November, having dropped from the previous month's level of 4.5 per cent.
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