Monetary Policy Committee

Lord Newby Excerpts

Monday 31st January 2011 Lords Chamber

[Lord Sassoon]

My Lords, I will not fall into the trap of second-guessing the MPC. As I have said, the Monetary Policy Committee of the Bank of England runs monetary policy on an independent basis. That was an establishment of the previous Government to which I pay tribute. I am certainly not going to do anything other than restate the critical importance of the independence of the Monetary Policy Committee. It is up to the committee to decide how to hit the inflation target, which it is doing with the full confidence of the Government.

[Lord Newby]

My Lords, does the noble Lord agree that the principal reason for having an inflation target was to bear down on domestic demand inflation, particularly wage inflation? Would he further agree that at the moment such pressure does not exist—wages are flat—and therefore it would be a mistake to put interest rates up primarily in response to external factors?

[Lord Sassoon]

My Lords, I am grateful to my noble friend because, while again I will resist the temptation to second-guess the Bank of England, it has indeed attributed the recent rise in inflation, which has been significantly to the depreciation of sterling, to the increase in VAT which the last Government put in place and to the rise in energy prices. These are external factors.