THE Bank of England must maintain a tight grip on interest rates in 2015 to stave off stagnation and deflation, a leading economic think tank has warned in its new year’s message.

With all the major political parties committed to deficit reduction after the election, the Institute for Public Policy Research (IPPR) issued a “freeze don’t squeeze” call to protect hard-pressed households in a Left Foot Forward website piece published today.

IPPR chief economist Tony Dolphin said: “The main argument for higher interest rates is the strength of economic growth and the associated fall in unemployment.”

But he pointed out that most forecasters expect growth to ease next year, reflecting a weaker global economy.

He said: “There is no reason to believe that another year of growth of even 3 per cent would lead to a marked increase in domestic inflation pressures.

“In particular, wage inflation is likely to remain well below the level believed to be consistent with the inflation target.”

Pointing to high levels of “involuntary part-time and temporary working,” Mr Dolphin said that only when there is a rise in secure, full-time work will there be a need for higher interest rates.

“One lesson from the financial collapse is that the Bank of England needs to have regard to a wide range of prices in the economy, not just consumer prices,” he said.

“An asset price bubble is just as big a threat to economic stability as accelerating consumer prices.”