Osborne Mulls Inflation Target Amid Debate on BOE MandateGonzalo Vina
Chancellor of the Exchequer George Osborne is considering the Bank of England’s mandate amid a debate among policy makers over how to boost the firepower of the central bank.
A Financial Times report today said Osborne may use his budget on March 20 to announce a change to the existing monetary framework. While a Treasury spokesman pointed out that the chancellor by law has to state the central bank’s remit at every budget, governor-designate Mark Carney has sparked a broader debate over how monetary policy can support output as well as stable prices.
Osborne and officials at the Treasury are considering the debate. The chancellor hasn’t yet decided whether any changes will be presented at the budget, the spokesman said.
The government is looking for ways to aid an economy on the verge of its first ever triple-dip recession without abandoning its deficit-reduction program. Prime Minister David Cameron will say in a speech today that “while some would falter and plunge us back into the abyss, we will stick to the course.”
Carney has signaled support for allowing the bank more flexibility in meeting its 2 percent inflation goal and promoted the idea of forward guidance. He said last month that his role at the central bank will be to help with its “re-founding.” Carney, currently governor of the Bank of Canada, takes over from Mervyn King on July 1.
Osborne said on Dec. 13 that he welcomes a debate on the target, while telling lawmakers that he has “no plans to change the framework.”
The FT said officials are looking at options including giving the bank a longer time to bring inflation back to target or changing the target altogether to give it a U.S.-style dual mandate to target inflation and jobs.
Bank of England Deputy Governor Charles Bean says it may be appropriate to review the U.K.’s inflation-targeting regime, and that policy makers stand ready to take further measures to boost the recovery if required.
“I think it is sensible to review the framework to assess whether it is fit for purpose or can be materially improved,” Bean said in a speech on Feb. 27. Still, “the hurdle for change should be high,” he said.
Bean said the current U.K. framework is already flexible and incorporates growth and employment. His comments echo those of policy makers Paul Tucker and Ian McCafferty, who have said the BOE’s remit allows it to look through temporary periods of above-target inflation to ensure stable output.
Osborne said in December that “the inflation target has served us well; if you were going to move away from it Parliament would want to be satisfied that we’d have significant rewards from it.”