Independent Bank Of England, Essay Topic: Significance Of The Indpendent Monetary Policy Comitee In The U.K. Over The Nation's Economy

839 words - 3 pages

Independent Bank of England"Since 1997, the new government has been putting in the new framework to deliver the objectives of high and stable levels of employment, with these reforms, I believe that we now have a sound and credible platform for stability for the British economy for the first time in a generation." These were the words of Gordon Brown emphasizing the importance of the independent Bank of England and the macro-economic outcome s that result from the decisions that it makes.In 1997, the power to set interest rates in the United Kingdom was given to a new Monetary Policy Committee (the MPC). Few decisions have as much macro-economic effects as the level of short term interest rates. Currently, the government sets the inflation level targets, and the MPC sets the interest rates to meet that target. The objectives of the independent Bank of England were explained in the 1998 Bank of England Act. The Bank has "to maintain price stability, and, subject to that, to support the economic policy of Her Majesty's Government including its objectives for growth and employment" (Bank of England Act 1998). Chancellor Gordon Brown's actions to make the independent Bank of England has been one of the most successful moves of his time because it has resulted with an increase in the stability of price levels, increase of employment levels, and an increase of the overall economic growth within the U.K..The independent actions taken by the MPC have lead to the greater stability of price levels in several ways. Rather than an individual held responsible for setting short-term interest rates previous of the 1998 Bank of England Act, currently the responsibility of changing the short term interest rate falls on the nine committee members of the MPC. Gordon Brown set the target inflation rate of 2.5% from 1998 to 2000, and as of 2000 the target for the MPC is 2.0% (King).The MPC has stuck as close to the target as possible, the greatest difference being 25 basis points under the target (2.25) (). In the 1970s, inflation averages over 13% a year, and it peaked 27% in Auguest 1975. During the 80s inflation averaged 7% a year(bbc). In the past, instability has contributed to UK's poor growth performacnce, by holding back long-term investmen that is the foundation for a successful economy .Price stability is one condition for high and stable levels of growth and employment.Increasing employment is another condition of a successful economy, and through setting short term interest rates, the MPC has managed to sustain. One of the key steps...

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