Budget 2013: Monetary Policy - 2 per cent inflation target remains as Osborne steers clear of radical change

The Chancellor avoided radical changes to the Bank of England's mandate, leaving the 2 per cent inflation target at the centre of monetary policy.

Sterling strengthened immediately after the Budget as George Osborne, as expected, ruled out potentially inflationary options such as targeting the growth level rather than the cost of living.

Mr Osborne, who said "low and stable inflation is a necessary but not sufficient condition for prosperity", is changing the timing of the open letter system, whereby the Governor writes to the Chancellor if inflation veers from the 2 per cent target by more than one percentage point.

Instead the Monetary Policy Committee will publish its open letter with the minutes of the meeting after the inflation data, stating how it will bring inflation back on track and how long it will be above or below target.

The committee will also be able to offer forward guidance on policy as currently employed by the US Federal Reserve. Jeremy Cook, chief economist at the foreign exchange dealer World First, said: "Osborne used terms like 'monetary activism' and suggested that 'forward guidance' should help smooth and configure rate expectations. However, without changing the Bank's inflation target the MPC will [not be allowed to use] too many unconventional measures."

IHS Global Insight's chief UK economist, Howard Archer, said: "It seems to formally give them more flexibility to do what they were doing already."

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