The U.K. Treasury said Chancellor of the Exchequer George Osborne will consider the Bank of England’s inflation target as he does every year, as policy makers debate an overhaul of central bank’s remit.
The Financial Times said today Osborne may announce a change to the existing monetary framework in the annual budget on March 20. A Treasury spokesman played down the report, saying it is no more than a reflection of the public debate on the subject.
Bank of England Governor-designate Mark Carney has signaled support for allowing the bank more flexibility in meeting its 2 percent inflation goal and promoted the idea of forward guidance. He said last month that his role at the BOE will be to help with its “re-founding.” Carney, currently governor of the Bank of Canada, takes over from Mervyn King on July 1.
Osborne said on Dec. 13 that he welcomes a debate on the target, while telling lawmakers that he has “no plans to change the framework.” Policymakers at the central bank and the Treasury have discussed whether a change is needed to help jump start Britain’s stalled economy.
The FT said officials are looking at options including giving the bank a longer time to bring inflation back to target or changing the target altogether to give it a U.S.-style dual mandate to target inflation and jobs.
Bank of England Deputy Governor Charles Bean says it may be appropriate to review the U.K.’s inflation-targeting regime, and that policy makers stand ready to take further measures to boost the recovery if required.
Fit for Purpose
“I think it is sensible to review the framework to assess whether it is fit for purpose or can be materially improved,” Bean said in a speech on Feb. 27. Still, “the hurdle for change should be high,” he said.
Bean said the current U.K. framework is already flexible and incorporates growth and employment. His comments echo those of policy makers Paul Tucker and Ian McCafferty, who have said the BOE’s remit allows it to look through temporary periods of above-target inflation to ensure stable output.
Osborne said in December that “the inflation target has served us well; if you were going to move away from it Parliament would want to be satisfied that we’d have significant rewards from it.”
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