Monetary Policy Committee

Lord Spicer Excerpts

Wednesday 6th July 2011 Lords Chamber

Asked By

[Lord Spicer]

To ask Her Majesty’s Government whether they will maintain the inflation target as the primary criterion of the Monetary Policy Committee.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, the Bank of England Act 1998 states that the objectives of the Monetary Policy Committee of the Bank of England are to maintain price stability and, subject to that, to support the economic policy of the Government. The Chancellor reaffirmed in Budget 2011 that the MPC will continue to target 2 per cent inflation as defined by the 12-month increase in the consumer prices index.

[Lord Spicer]

I thank my noble friend for that Answer—and take it as a yes. In the light of that, what response are the Government giving to the stream of letters of apology from the Governor of the Bank of England for not meeting the inflation target?

[Lord Sassoon]

My Lords, it is part of the discipline of the way in which the Monetary Policy Committee operates that it is required to write letters to the Chancellor when inflation is outside the target range. The most recent exchange of letters was in May 2011, in which the Chancellor recognised the factors driving short-term inflation, including, particularly, the very high commodity prices. However, it is important to recognise that the MPC’s mandate enables it to look through short-term movements in prices towards a medium-term target.