Monetary Policy Committee: Inflation

Lord Flight Excerpts

Wednesday 13th February 2013 Lords Chamber

[Lord Deighton]

My Lords, it is extremely clear from the MPC’s own minutes how it treats that trade-off. With the House’s indulgence, I will read the most appropriate lines:

“The Committee discussed the appropriate policy response to the combination of the weakness in the economy and the prospect of a further prolonged period of above-target inflation. It agreed that, as long as domestic cost and price pressures remained consistent with inflation returning to the target in the medium term, it was appropriate to look through the temporary, albeit protracted, period of above-target inflation”.

That is the perfect mandate for flexible inflation targeting.

[Lord Flight]

My Lords, how credible does the Minister think it is that the Bank of England could unwind £380 billion of QE and sell £380 billion of gilts, in the event of velocity of circulation recovering and the economy picking up, so as to stabilise the money supply?

[Lord Deighton]

My noble friend raises an important question: the technical unwind of the quantitative easing strategy, which is not something which would appear imminent. However when it does take place it will be done in full consultation with the Debt Management Office to ensure that we minimise any volatility to the gilt markets.