Monetary Policy Committee

Debate between Lord Spicer and Lord Sassoon

Wednesday 6th July 2011 Lords Chamber

[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.

Inflation

Debate between Lord Spicer and Lord Sassoon

Wednesday 19th January 2011 Lords Chamber

[Lord Spicer]

To ask Her Majesty’s Government what plans they have to reduce the rate of inflation.

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

My Lords, the UK’s monetary policy framework gives operational responsibility for maintaining price stability to the independent Monetary Policy Committee of the Bank of England. The MPC stated in the minutes of its December 2010 meeting that its central view remained that a substantial margin of spare capacity in the economy was likely to persist for some time and would bear down on inflation in the medium term as the impact of temporary factors waned.

[Lord Spicer]

I thank the Minister for that reply. Now that the consumer prices index has risen to almost twice the Bank of England’s target inflation figure, will the Government consider exchanging quantitative easing for quantitative tightening?

[Lord Sassoon]

My Lords, of course the Government are concerned about the current level of inflation and the impact that it has on many parts of society, particularly on working families, savers and others. However, how the Bank of England meets the Government’s set target for inflation, including decisions about what it does, if anything, about quantitative easing or the reversal of it, is an operational decision for the bank.