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TSC launches monetary policy inquiry in wake of changing BoE remit

Andrew Tyrie BBA Conference 2012 480

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The Treasury select committee has launched an inquiry into monetary policy as a result of the changing remit of the Bank of England.

In last month’s Budget, chancellor George Osborne retained the Bank’s overall inflation target of 2 per cent but said it must take account of economic growth and opened the door to the long-term setting of interest rates.

In its Budget 2013 report, TSC chair Andrew Tyrie says: “Any change to the remit has the scope to create uncertainty. Changes should not be frequent. In light of the new remit announced, the committee will launch an inquiry into monetary policy. Future remit changes should require parliamentary approval.”

The TSC warned monetary policy credibility is “hard won and easily lost” and the changes to the Bank’s remit could have a major impact on the economy. It says any justification for change must be strong.

Bank of Canada governor Mark Carney will take over from Sir Mervyn King as Bank of England governor in July. Carney has welcomed a debate over monetary policy and called for central banks to be more flexible and “activist” by using
monetary policy to aid economic growth.

Conservative MP Steve Baker, a critic of both monetary policy and Carney, welcomes the inquiry. He says: “I want the inquiry to dig into what effect an active monetary policy has on the allocation of capital goods. It is absolutely the heart of why the economy has not turned around in the way economists expected.”

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