Changing the Inflation Target

Abstract

Since May 1997, when the Bank of England was given operational independence to set monetary policy, the Monetary Policy Committee (MPC) has been responsible for setting short-term interest rates to ensure that the Government's inflation target is met. The target is currently 2.5 per cent and the target measure is the Retail Price Index excluding mortgage interest payments (RPIX). If RPIX inflation deviates more than 1 per cent from the central target, the Governor of the Bank of England is expected to provide a written explanation to the Chancellor of the Exchequer as to why the inflation target has been missed.