Britain’s 20-year-old inflation-targeting regime “has come of age” and should be reviewed, the outgoing Bank of England Governor, Sir Mervyn King, said tonight.
Sir Mervyn’s comments pave the way for the first major overhaul of the Bank’s inflation target since it was granted independence in 1997 when Canadian Mark Carney succeeds him in July.
Sir Mervyn’s intervention comes as central banks across the world sharpen their armoury in an attempt to shore up a fragile global recovery. He said in Belfast: “In the UK, the inflation target was introduced almost 21 years ago, and it has now come of age. It would be sensible to review the arrangements for setting monetary policy.”
The Bank is tasked with keeping inflation at 2 per cent, but the cost of living has been above the target since the end of 2009, fuelled by higher energy bills, food costs, and the Treasury’s rise in VAT to 20 per cent two years ago.