Higher inflation would be good for the economy according to a former MPC member.
Professor David Blanchflower argued a period of higher inflation could be a way of tackling the country’s massive debt burdon.
“I actually do think higher inflation right now would be a good thing,” he said.
“You would actually end up inflating some of the debt away, but also if we get into a position where house prices were to fall further we are going to have a large number of people in negative equity, and if you have a few years of inflation that actually will deal with that problem.”
Prof Blanchflower suggested 4 per cent would be a “pretty good starting point”, adding: “You don’t want the Bank of England any time soon to be raising interest rates - that’s not a good thing.
“So you want to allow some inflation to come in, keep interest rates as low as you possibly can, and make sure we get out of this recession.”
He made his comments as Bank of England Governor Mervyn King prepared to send a letter of explanation to the Chancellor when figures show a spike in inflation above 3 per cent.
Economists are forecasting that Consumer Prices Index (CPI) inflation surged to a 14-month high of 3.5 per cent in January, caused by a temporary rise in prices as a return to the 17.5 per cent VAT rate and higher petrol costs took effect.
Mr King has already indicated he will have to write to Alistair Darling explaining why inflation rose 1 per cent above target in January, with inflation having already surged by a record rate in December.
The central bank boss must write to the Chancellor when CPI hits more than 1 per cent above or below the 2 per cent target.
In its latest inflation report last week, the Bank warned that consumer prices could rise up to 3.5 per cent before falling back below the 2 per cent target.
