The Bank of England Act 1998 requires the Treasury to specify at least once every 12 months how price stability should be defined and what the economic policy of the Government consists of. This is the monetary policy remit, which the Chancellor specifies in a letter to the Governor of the Bank of England.
Monetary policy has a critical role to play in supporting the economy as the Government delivers on its commitment to necessary fiscal consolidation. To ensure that it can continue to play that role fully, the Government has reviewed the monetary policy framework in international and historical context. This Review of the monetary policy framework is published alongside Budget 2013.
Review of the monetary policy framework (PDF 590KB)
As a result, the Government has updated the remit for the Monetary Policy Committee. The Government has:
retained a flexible inflation targeting framework and reaffirmed the 2 per cent inflation target, which applies at all times;
updated the remit to clarify the trade-offs that are involved in setting monetary policy to meet a forward-looking inflation target; and
requested that the Monetary Policy Committee (MPC) provides in its August 2013 Inflation Report an assessment of the merits of using intermediate thresholds – policy commitments conditional on future economic developments – in the operation and communication of monetary policy.