Rachel Lomax, Deputy Governor of the Bank of England, issued a challenge to fellow members of the Monetary Policy Committee last night not to endanger growth and employment needlessly by trying to guard against nugatory risks.

In a strong defence of her vote against this month’s rise in official interest rates, Ms Lomax said that insurance always came at a cost: “Taking out insurance against risks that do not materialise can inject unnecessary volatility into the economy, with consequences for jobs as well as demand.”

When the MPC was set up, the former Treasury official noted, its remit specifically allowed for shocks and disturbances, such as the jump in energy prices. It reads:

“Attempts to keep inflation at the inflation target in these circumstances may cause undesirable volatility in output.”

The open letter to the Chancellor that a Governor must write if inflation missed the target was not, she implied, a dreadful humiliation to be avoided at all costs.

In a speech to Cardiff Business Club, Ms Lomax dismissed almost contemptuously the MPC’s worry about the new year wage round, one of the reasons for the latest rise to 5 per cent.

She said: “There are still no real signs of pressure in the labour market and, while it never does to be complacent about pay, in today’s labour market there is quite a difference between asking for higher pay and getting it, even in sectors not exposed to the full blast of global competition.”

Ms Lomax ended her previous record of agreeing consistently with the view of Mervyn King, the Governor, by joining the independent economist David Blanchflower in a 7-2 split vote. Minutes of the meeting implied that her concerns centred on the risk of the American economy slowing sharply. Her speech shows that she thinks risks of higher UK inflation are exaggerated.

Cheap imports, migrant labour, mobility of investment and the MPC’s own credibility have made people more circumspect when they pitch pay claims, Ms Lomax argued. She said: “The net effect of these trends may have been to reduce the sensitivity of inflation to changes in the margin of capacity in the economy.”

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