Nemat Shafik
Dame Nemat Shafik said the Bank of England had room to lower interest rates further Reuters

A deputy governor at the Bank of England has defended the decision not to raise interest rates for the 80th month in row. She said that they should not be used "to deal with problems in the housing market."

Dame Nemat Shafik said the bank "had other tools" to deal with them, adding that interest rates could be cut below the current record low of 0.5%. "We do have room to lower interest rates if we had to and we could do more quantitative easing if we had to," she told the BBC, adding that the bank did not need "any more ammo, because the economy is growing above trend."

As the economy approaches full employment in the coming months, she said the labour market would start to tighten. "We are over time seeing a situation where there are recruitment difficulties in many parts of the country, employers are having to bid up wages."

Dame Nemat, who sits on the bank's nine-strong Monetary Policy Committee (MPC), was among those who voted 8-1 to keep interest rates unchanged at 0.5%, where they have been for six and a half years.

Despite speculation that Kristin Forbes or Martin Weale would advocate to raise rates to 0.75%, the minutes revealed her colleague Ian McCafferty was the only MPC to go against the grain.

"Every month we meet we pour over the data and we argue and we analyse and it's a big decision and we make that decision with huge amounts of care and thoughtfulness and making a decision to keep rates steady is just as difficult a decision to raise or lower rates," she said.