Policy paper

Review of the monetary policy framework

This publication was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

This document contains an updated remit for the Monetary Policy Committee, announced at Budget 2013.

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Monetary policy has a critical role to play in supporting the economy as the government delivers on its commitment to necessary fiscal consolidation. Monetary policy aims to maintain the value of money relative to the goods and services it is used to purchase. To ensure that it can continue to play that role fully, the government reviewed the monetary policy framework.

Since the Monetary Policy Committee of the Bank of England was given operational independence in 1997, the remit for the MPC has included an inflation target. The review examines past monetary policy frameworks in the UK, and considers approaches to monetary policy across advanced economies since the global financial crisis in 2008-09.

The remit for the MPC reflects the assessment set out in this review. The government has:

  • retained a flexible inflation targeting framework; that is, the MPC may allow inflation to deviate from the target temporarily in order not to cause undesirable volatility in output
  • reaffirmed the 2 per cent inflation target, which applies at all times
  • clarified how existing flexibilities in the remit should be interpreted, allowing for a balanced approach to the objectives while maintaining the primacy of price stability and the inflation target
  • asked the MPC to provide, alongside its August 2013 Inflation Report, an assessment of the use of policy commitments conditional on future economic developments, in order to meet its objectives more effectively - this was published on 7 August 2013