inflation target kept at 2 per cent

The 2% inflation target has been kept in place following a review of the Monetary Policy Committee framework by the government, but Chancellor George Osborne said an updated remit for incoming governor Mark Carney & co could see them adopt Fed-like behaviours in the future.

inflation target kept at 2 per cent


The chancellor said in his Budget speech on Wednesday that he would like the MPC to submit in its August 2013 inflation report – the first under successor governor Mark Carney – an assessment of the merits of using intermediate thresholds in setting and communicating monetary policy.

By this he meant policy commitments conditional on future economic developments, much like the Federal Reserve links its policy to the US jobless rate.

In order to boost growth, the chancellor said: "The new remit also recognises that the Monetary Policy Committee may need to use unconventional monetary instruments to support the economy while keeping inflation stable."

Quantitative easing through the asset purchase facility launched back in 2009 will continue, Osborne confirmed.

In a letter to the current governer of the Bank of England, Mervyn King, Osborne said: “CPI inflation is likely to rise further in the near term and may remain above the 2 per cent target for the next two years, in part reflecting a persistent inflationary impact from both administered and regulated prices and the recent decline in sterling. The Committee judged that as long as cost and price pressures remained consistent with inflation returning to the target in the medium.”

Both King and Carney had the changes in remit communicated to them in advance, Osborne said, and were supportive of the government’s moves.




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