The Bank of England deputy governor has said the next move for interest rates is still likely to be up, despite continuing pressure on prices which has seen inflation fall to zero.

Minouche Shafik said on a visit to Kent that underlying inflation was actually “not that low” and that the real drivers behind its decline were “temporary and mainly external”.

The main reasons for the sharp fall was the rapid decrease in oil prices and the negative affect of the rising sterling on UK firms’ profits, she said in an exclusive interview with Kent Business.

It comes after the Bank of England’s chief economist Andrew Haldane said last week that interest rates may be cut to zero to avoid the threat of deflation.

Pressure to cut interest rates increased this week after the Consumer Price Index said inflation fell from 0.3% in January, with it expected to dip further in the coming months.

A price war between supermarkets is also reducing inflation, with the CPI reporting the cost of food and non-alcoholic beverages fell 3.3% compared to a year earlier – a record fall.

Yet Dr Shafik said the “central expectation” of the Bank of England’s monetary policy committee, which sets interests rates, is that the next move will be up.

She said: “Inflation is below the 2% target we are meant to have achieved but the real drivers behind that are temporary and mainly external.

“It is mainly about import prices and the sharp drop in the price of oil as well as the effects of sterling’s appreciation in the past.

“If you take out those temporary external factors, the underlying core inflation is not that low.

“We don’t know how long those forces are going to impact inflation. It could be a while and we don’t know when the oil price will go back up.

“The monetary policy committee has rightly said we shouldn’t change interest rates in response to something that is temporary.”

She said the Bank of England will keep its options open and did not completely rule out a fall in interest rates in the future.

“Kent is interesting because if you look at the aggregate numbers – growth, unemployment – it does better than the national average on most measures..." - Minouche Shafik

“I do feel we have the tools to respond to whatever data shows up,” she said.

“We have the option of raising rates, the option of being more gradual, and should we ever get there, we have the option to lower rates.”

Dr Shafik made the comments at Eastwell Manor Hotel in Ashford after speaking with 12 companies from the county at a meeting arranged by Kent Invicta Chamber of Commerce.

She then paid a visit to engineering business MJ Allen in the town’s Cobbs Wood Industrial Estate.

She said: “Kent is interesting because if you look at the aggregate numbers – growth, unemployment – it does better than the national average on most measures.

“In some ways it is at the forefront of the recovery but it also has an interesting mix. Some parts are doing very well with high-tech jobs of the future and a manufacturing base.

“But it has also got bits where unemployment is very high and there are real economic difficulties.

“Being able to see all those challenges in one place is good for me to inform the policy decisions.”