Chancellor hints at big inflation shake-up

 

George Osborne today signalled he would consider scrapping the Bank of England's 2 per cent inflation target and replacing it with a more pro-growth mandate.

The Chancellor was asked by the Commons Treasury Committee for his view of the incoming Bank of England Governor, Mark Carney, who suggested this week that a nominal GDP growth objective for central banks might be more effective in stimulating weak economies than traditional inflation targets.

Mr Osborne told the MPs on the committee that it is "good there is a debate" on the subject and added that the discussion was "totally to be expected after everything that has happened to the international economy, and indeed to the British economy over the last four or five years".

The Chancellor stressed that he had "no plans" to ditch the present 2 per cent target for Threadneedle Street and that any decisions about the monetary policy framework would have to be decided by the government.

He added: "You would want to be satisfied, and parliament would want to be satisfied, that you were getting some very significant rewards in return for moving away from that." But Mr Osborne made no attempt to conceal his interest in the idea. Moving away from an inflation target would be a revolutionary and deeply controversial shift in monetary policy.

The Bank of England has had a 2 per cent inflation target since it was granted independence in 1997. The central objective for the Bank's monetary policy committee is to hit the target over a two-year horizon. Some critics have complained that the target has prevented the Bank from injecting sufficient stimulus into the economy since the 2008/09 financial crisis. But others say that the Bank has effectively ignored the target because inflation has persistently been above 2 per cent in recent years.

At a speech in Toronto on Monday Mr Carney said NGDP targeting "could in many respects be more powerful" in helping stimulate an economy than traditional inflation targeting when policy interest rates have already been cut to very low levels. The Bank of England's main rate has been at a record low of 0.5 per cent since March 2009. The UK economy has grown by just 0.6 per cent since Mr Osborne became Chancellor.

Mr Osborne shocked the City of London last month when he named Mr Carney, the head of the Canadian central bank, as the successor to Sir Mervyn King, when the present Governor steps down in June 2013. The wide expectation was that the present Bank deputy governor, Paul Tucker, would be named.

Suggested Topics
News
peopleFrankie Boyle responds to referendum result in characteristically offensive style
News
news
Life and Style
Couples have been having sex less in 2014, according to a new survey
life
New Articles
i100... with this review
PROMOTED VIDEO
Voices
Holly's review of Peterborough's Pizza Express quickly went viral on social media
Sport
footballTim Sherwood: This might be th match to wake up Manchester City
Arts and Entertainment
musicHow female vocalists are now writing their own hits
New Articles
i100
News
ebooksAn unforgettable anthology of contemporary reportage
News
news
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
News
Blahnik says: 'I think I understand the English more than they do themselves'
people
Arts and Entertainment
Michelle Dockery as Lady Mary Crawley in Downton Abbey
TVInside Downton Abbey series 5
Life and Style
The term 'normcore' was given the oxygen of publicity by New York magazine during the autumn/winter shows in Paris in February
fashionWhen is a trend a non-trend? When it's Normcore, since you ask
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam