The Bank of England has this week announced a reform in the way that it announces and conducts interest rate changes.
The changes, which could include potentially reducing the number of meetings of the Monetary Policy Committee (MPC) to discuss Base Rate, follow the publishing of an independent review into the MPC by former Federal Reserve Board governor Kevin Walsh.
Currently, the MPC meet monthly to discuss the Base Rate, however this could move to 8 meetings a year from 2016, with the remaining four meetings held jointly with the MPC and the Financial Policy Committee, who are currently tasked with identifying, monitoring and taking action around risk.
“The Bank now has immense responsibilities for monetary stability, financial stability and for micro-prudential regulation” said Mark Carney, governor of the Bank of England. “With these responsibilities come the need for effective transparency, genuine accountability and robust governance.”
“I am pleased to announce the most significant set of changes to how we present and explain our interest rate decisions since the Monetary Policy Committee was formed in 1997. Alongside those measures, we have also proposed a number of additional changes that will mark a step change in the governance of this institution. These changes will enhance our transparency and make us more accountable to the British people.”
Minutes from this months’ meeting show that seven members voted in favour of the Base Rate staying at 0.5% in December, with just two members – Ian McCafferty and Martin Weale – again voting for an increase of 0.25%.
This comes amid an embarrassing time for Governor Carney, as he prepares to explain to Chancellor George Osborne the reason for the Bank of England apparent lack of control over inflation, as new figures this week confirm a 12-year low in the Consumer Price Index (CPI).
According to Office of National Statistics figures, inflation fell to 1% in November, down again from 1.3% in October, moving to the borderline of the Bank of England’s inflation target, to be within one percent of 2%.
Should inflation fall outside of this target, Governor Mark Carney is obliged to write to the Chancellor to explain the reasons for this, with many pointing to falling oil prices as a key driver.
Whilst that may spell good news for many consumers, the lack of matching wage increases have meant a drop in inflation, according to Cathy Jamieson, Labour’s shadow treasury minister.
“These figures show that plummeting global oil prices have led to the rate of inflation falling here in Britain. Wages continue to be sluggish, barely keeping up with rising prices. The latest figures show total pay up by just 1% - the same as today's CPI figure."
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