Bank of England: Monetary Policy

Lord Peston Excerpts

Tuesday 19th March 2013 Lords Chamber

[Lord Newby]

My Lords, as I said in my original Answer, operational responsibility for monetary policy is a matter for the independent Monetary Policy Committee of the Bank of England, not for the Treasury.

[Lord Peston]

My Lords, bearing in mind that Section 19 of the Bank of England Act 1998 gives reserve powers to the Treasury to give directions to the Bank of England, am I right that those powers have never been used? I am pretty sure that I am right. Does it not follow that the failure—despite the fact that the Act says that this is the MPC’s objective—to hit the inflation target for three years without the slightest sign that it will be hit for the next two years, coupled with monetary easing, is down to the MPC?

[Lord Newby]

My Lords, inflation has been higher than the 2% target for a number of years. The MPC has taken the view that the target would be met in the medium term and that, because the principal reasons for inflation did not include excessive domestic demand and are therefore less capable of being moderated by increases in our own interest rates, it was wiser to “see through” the temporary increase in inflation above 2% but to work, as the MPC has, on the basis that, in the medium term, inflation would indeed come down to 2%.