Economy: Monetary and Fiscal Policy

Lord Newby Excerpts

Tuesday 8th November 2011 Lords Chamber

[Lord Sassoon]

My Lords, the Bank of England is completely sticking to its statutory responsibilities and to the letter setting out its monetary policy mandate. If the noble Lord, Lord Peston, would care to look at the latest commentaries in the Bank’s quarterly documents —he is nodding—he will see that they identify the risks to inflation on the undershooting rather than the overshooting side. They identify a number of factors that will reverse the trend in inflation early in 2012. That is why the Bank decided to recommend increased quantitative easing to the Treasury to ensure that there is no risk of an undershoot on the inflation target.

[Lord Newby]

My Lords, does the Minister agree with the recent report of the Treasury Select Committee that, in a time of economic crisis, the buck stops with the Treasury, and that it should therefore be able to direct the Bank in such circumstances?

[Lord Sassoon]

My Lords, it is completely the case that the Chancellor of the Exchequer sets the inflation target for the MPC. I am sure my noble friend is not suggesting that we should go back on the previous Government’s decision, which I applaud, to give the Bank of England independence in this area. Monetary policy should be the first line of defence in the face of economic shocks.