British lawmakers will call on the Bank of England’s next governor, Mark Carney, to explain whether the central bank should drop its inflation target and change the basis on which it sets interest rates.
The Treasury Committee of the House of Commons said it will ask Carney at a hearing on Feb. 7 whether the existing policy framework is the right one for the U.K. after barely any economic growth in the past five years.
“The Treasury Committee will question Carney on whether he thinks that there may be a better monetary policy for the U.K. than the current one,” the chairman of the cross-party panel, Andrew Tyrie, a member of Prime Minister David Cameron’s Conservative Party, said in a statement released by his office in London today.
Officials in the U.K. have begun debating the need for a change in the system established in 1992, suggesting nominal gross domestic product as a better target to give Carney and the central bank’s Monetary Policy Committee more scope to support growth. Data released last week showed the economy may be heading for its first triple-dip recession on record.
The Bank of England targets an inflation rate of 2 percent. Prices rose an annual 2.7 percent in December.
Carney, currently governor of the Bank of Canada, urged central banks in comments three days ago to secure “escape velocity” for their economies and said there is still room for more monetary stimulus around the world if needed. He said policy in developed countries isn’t “maxed out” and that central bankers can be flexible in meeting inflation goals.
While Carney didn’t specify the U.K, he told the World Economic Forum’s annual meeting in Davos, Switzerland, that central bankers “might take a little longer” to hit their price-growth goals in economies facing budget cuts and above- target inflation.
Carney sparked debate last month on the future of the BOE’s mandate when he said nominal GDP targeting could be a “more powerful tool” to stimulate economies, though he didn’t discuss the subject in Davos.
Chancellor the Exchequer George Osborne has said he wants a debate on whether the target should change, while telling Tyrie’s panel last year that he has “no plans to change the framework.”
The Treasury Committee criticized the Treasury and the Bank of England today over the way they handled the announcement that the government would be paid the coupon on bonds held in the central bank’s bond-buying program. It also called on Osborne to make the annual budget the centerpiece for announcing fiscal policy changes, rather than also setting policy in his end-of- year statement.
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