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
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA celebration of British elections
  • Get to the point
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

SThree: Trainee Recruitment Consultant - Swiss Banking and Finance

£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...

Ashdown Group: Marketing Executive - 6 month FTC - Central London

£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...

Ashdown Group: Junior Project Manager (website, web application) - Agile

£215 per day: Ashdown Group: Junior Project Manager (website, web application ...

Guru Careers: Software Engineer / Software Developer

£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...

Day In a Page

General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'
Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

Flesh in Venice

Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
11 best anti-ageing day creams

11 best anti-ageing day creams

Slow down the ageing process with one of these high-performance, hardworking anti-agers
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever