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The original letter can be found at: http://www.hm-treasury.gov.uk/mediastore/otherfiles/ bofe_monetary_policy_com_remitletter.pdf
Sir Edward George Governor Bank of England Threadneedle Street LONDON EC2R 8AH 17 April 2002
REMIT FOR THE MONETARY POLICY COMMITTEE The Bank of England Act requires that I specify what price stability is taken to consist of and the Government’s economic policy objectives at least once in every period of 12 months beginning on the anniversary of the day the Act came into force. I last wrote to you on this matter on 29 April last year.
I hereby re-confirm the target as 2½ per cent for RPIX inflation. In accordance with the Act, I also confirm the economic policy of Her Majesty’s Government is to achieve high and stable levels of growth and employment by raising the sustainable growth rate and creating economic and employment opportunities for all.
I attach a copy of the remit, as set out in June 1998 (after the Act came into force), for ease of reference.
Yours sincerely
GORDON BROWN
REMIT FOR THE MONETARY POLICY COMMITTEE The Bank of England Act came into effect on 1 June 1998. The Act states that in relation to monetary policy, the objectives of the Bank of England shall be: (a) to maintain price stability, and (b) subject to that, to support the economic policy of Her Majesty’s Government, including its objectives for growth and employment.
In order to comply with the Act, this remit sets out what price stability shall be taken to consist of and what the economic policy of the Government shall be taken to be.
Price stability I confirm that the operational target for monetary policy remains an underlying inflation rate (measured by the 12-month increase in the RPI excluding mortgage interest payments) of 2½ per cent. The inflation target is 2½ per cent at all times: that is the rate which the MPC is required to achieve and for which it is accountable.
My intention is to lock into our policy-making system a commitment to consistently low inflation in the long term. The real stability that we need will be achieved not when we meet the inflation target one or two months in succession but when we can confidently expect inflation to remain low and stable for a long period of time.
The framework takes into account that any economy at some point can suffer from external events or temporary difficulties, often beyond its control. The framework is based on the recognition that the actual inflation rate will on occasions depart from its target as a result of shocks and disturbances. Attempts to keep inflation at the inflation target in these circumstances may cause undesirable volatility in output.
But if inflation moves away from the target by more than 1 percentage point in either direction I shall expect you to send an open letter to me, following the meeting of the Monetary Policy Committee and referring as necessary to the Bank’s Inflation Report, setting out: — the reasons why inflation has moved away from the target by more than 1 percentage point; — the policy action which you are taking to deal with it; — the period within which you expect inflation to return to the target; — how this approach meets the Government’s monetary policy objectives.
You would send a further letter after three months if inflation remained more than 1 percentage point above or below the target. In responding to your letter, I shall, of course, have regard to the circumstances prevailing at the time.
The thresholds do not define a target range. Their function is to define the points at which I shall expect an explanatory letter from you because the actual inflation rate is appreciably away from its target.
Government’s economic policy objectives The Government’s central economic policy objective is to achieve high and stable levels of growth and employment. Price stability is a precondition for these high and stable levels of growth and employment, which will in turn help to create the conditions for price stability on a sustainable basis. In the recent past, instability has contributed to the UK’s poor growth performance, not least by holding back the long-term investment that is the foundation for a successful economy.
The monetary policy objectives of the Bank of England are to maintain price stability and subject to that, to support the Government’s economic policy, including its objectives for growth and employment.
Accountability The Monetary Policy Committee is accountable to the Government for the remit set out in this letter. The Committee’s performance and procedures will be reviewed by the Court on an ongoing basis (with particular regard to ensuring the Bank is collecting proper regional and sectoral information).
The Bank will be accountable to Parliament through regular reports and evidence given to the Treasury Select Committee. Finally, through the publication of the minutes of the Monetary Policy Committee meetings and the Inflation Report, the Bank will be accountable to the public at large.
Restatement of the Remit The inflation target will be confirmed in each Budget. There is a value in continuity and I will have proper regard to that. But I will also need to consider the case for a revised target at these times on its merits.
Any changes to this remit will be set out in the Budget. The Budget will also contain a statement of the Government’s economic policy objectives. |