As the government makes growth its top priority, one critical lever risks being overlooked: monetary policy. Ministers are busy wrestling with fiscal constraints and the pressures of a sluggish economy, but too much focus remains on spending pledges and supply-side fixes, and too little on the frameworks that shape demand and investment. Ahead of this week’s Spring Statement, they must ask a harder question: is the Bank of England’s inflation-targeting regime now holding back Britain’s recovery?
As I argue in my new Institute of Economic Affairs paper, Rethinking Monetary Policy, inflation targeting is no longer fit for purpose. At stake is whether the UK should now move beyond inflation targeting and adopt a nominal GDP (NGBP) target: one that better supports the government’s wider ambition to revive growth and restore confidence.
At present, the Bank remains bound to its rigid 2 per cent inflation target.
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