Thursday, August 08, 2013
With average inflation above 3% since 2005, it has been obvious for a while that the Bank of England has in effect unilaterally decided to abandon the 2% inflation target the law says it should follow. Now it in effect creates a target for the unemployment rate by say that they won't consider raising interest rates until the unemployment rate falls below 7%. To create the appearance that they're not completely ignoring their legal mandate, they say that if inflatin is likely to be above 2.5% (whatever happened to 2%?)in the next 18 months they might after all tighten even if unemployment is above 7%, but since they've been saying that inflation is likely to be 2% in that time range for the last eight years, that's not going to limit their inflating. This probably won't mean much change in actual policy, which was very inflationist to begin with, but the Bank of England now makes its deliberate flouting of its legal mandate to keep inflation at 2% explicit.