Monetary Policies Of The Bank Of England Essay

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Given the power to formulate and implement monetary policies, the Bank of England (the Bank) declared its independence in 1997, taking charge of maintaining price stability and supporting the economic policy of Her Majesty 's Government, including its objectives for economic growth and employment. In the following sections, the paper will attempt to assess the Bank’ work and its policies that has been carried out during the economic downturn.

As Mizen (2003:196) noted, during the period from 1970s to early - 1990s, a series of monetary policies that introduced by the British government turned out to be unsuccessful – the inflation was out of control. The underperforming monetary policies provoked the reform in 1997, after which the new UK monetary policy framework was established according to Bank England Act 1998, giving independence to the Bank as well as assigning responsibility of monetary policy to the newly created Monetary Policy Committee (MPC).

The Retail Prices Index Excluding Mortgage Payments (RPIX) was to be the new goal and the inflation target was set at 2.5% with 1% tolerance range in 1997. That measurement, changed to the Harmonized Inflation Consumer Index (HICP) with target at 2% with 1% tolerance range in 2003 (Brown, 2003). Chart 1 shows that the inflation rates predicted by the HM Treasury during 1997-2002 and 2003-2006 averaged around 2.5621% and 1.9825%, falling within the tolerance range of the inflation targets with less volatility. In addition,
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