The Bank’s monetary policy
objective is to deliver price stability – low inflation – and, subject to that,
to support the Government’s economic objectives including those for growth and
employment. Price stability is defined by the Government’s inflation target of
2%. The remit recognises the role of price stability in achieving economic
stability more generally, and in providing the right conditions for sustainable
growth in output and employment. The Government's inflation target is announced
each year by the Chancellor of the Exchequer in the annual Budget statement.
The inflation target
The inflation target of 2% is expressed in terms of an annual rate of inflation
based on the Consumer Prices Index (CPI). The remit is not to achieve the
lowest possible inflation rate. Inflation below the target of 2% is judged to
be just as bad as inflation above the target. The inflation target is therefore
symmetrical.
The Monetary Policy Committee
The Bank seeks to meet the inflation target by setting an interest rate. The
level of interest rates is decided by a special committee – the Monetary Policy
Committee. The MPC consists of nine members – five from the Bank of England and
four external members appointed by the Chancellor. It is chaired by the
Governor of the Bank of England. The MPC meets monthly for a two-day meeting,
usually on the Wednesday and Thursday after the first Monday of each month.
Decisions are made by a vote of the Committee on a one-person one-vote basis.
Communications
The interest rate decision is announced at 12 noon on the second day. The minutes
of the meetings, including a record of the vote, are published on the Wednesday
of the second week after the meeting takes place. Each quarter, the Bank
publishes its Inflation Report, which provides a detailed analysis of economic
conditions and the prospects for economic growth and inflation agreed by the
MPC. The Bank also publishes other material to increase awareness and
understanding of its monetary policy function.
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