Deep Dive: BoE inflation target requires flexibility to overcome 'exogenous shocks'

Inflation target of 2% is 'arbitrary'

clock • 4 min read

Flexibility in the Bank of England's 2% inflation target may be the way forward to manage the effects of “exogenous shocks” and create a balance of price stability and economic growth, experts have said.

The BoE's Consumer Price Index inflation rate target has been 2% since 2004. Back in 1998, the Bank of England Act gave the central bank the independence to make decisions on interest rates, in order to meet the inflation target set by the government. Inflation targeting anchors expectations, provides decision making confidence and works to achieve price stability, argued Rob Morgan, chief investment analyst at Charles Stanley. Sebastian Vismara, senior economist at BNY Mellon Investment Management, said before the BoE gained instrument independence, inflation was over 6% and "highly ...

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