Examine the Bank of England’s approach to Monetary Policy since 1997.

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Examine the Bank of England’s approach to Monetary Policy since 1997.

  • Interest Rate decisions are conducted by the Monetary Policy Committee – body independent from the government [part of the Bank of England] designed solely to make decisions about the interest rate. It is comprised of four independent experts, usually professional economics, four members from the BoE staff and the Governor of the BoE. Meet once a month and consider a wide range of statistical indicators which help them decide the nature of inflation for the coming month. The primary goal of the MPC is to “deliver price stability whilst supporting the growth and employment goals of the government’s economic policy” (source: Bank of England). A secondary role of the MPC, as suggested by its behaviour, is to frequently publish information regarding inflation. This is based on the Monetarist school of thought, especially the Adaptive Expectations hypothesis pioneered by Milton Friedman. An awareness and expectation surrounding inflation will reduce ‘money illusion’ and short term fluctuations in unemployment. Actual decisions made to vary the interest rate are carried out in a democratic matter monthly – changes are made in the 2.5% to 5% band. Interest rates are also important as an intermediary tool of fiscal policy as govt borrowing is financed according to the relative cost of borrowing – the IT

The Bank of England's Monetary Policy Committee today voted to reduce the Bank's repo rate by 0.25% to 3.75%.

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The Committee reviewed monetary and economic developments in the light of its latest quarterly projections for output and inflation, to be published in the February Inflation Report.

RPIX inflation has, as expected, moved a little above target, but this is the result of temporarily large contributions from petrol prices and from housing depreciation. These influences on inflation will persist for some time but are expected to unwind further ahead.

Over the next two years, the prospects for demand, both globally and domestically, are somewhat weaker than previously anticipated. In order to keep inflation on track to meet the target ...

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