Select Committee on Treasury Twelfth Report

1  Introduction

Building on success

1. The last decade has seen a period of sustained low inflation unparalleled in the history of post-war Britain. A target for inflation has been set and inflation has remained remarkably close to that target. The conduct of monetary policy has become the responsibility of the Monetary Policy Committee (MPC) of the Bank of England, which has discharged its responsibilities with a high degree of success. In this Report, we examine the reasons for that success, but we also look at ways to build on that success. We make recommendations designed to strengthen further the monetary policy framework to help to ensure that that framework is fully prepared to operate and retain high levels of parliamentary and public support in less benign economic conditions than those that have prevailed in recent years.

The conduct of our inquiry

2. We undertake regular scrutiny of the MPC's work, both through our sessions with members of the MPC about Inflation Reports and through the appointment hearings which we hold with appointees to the MPC. As the tenth anniversary of the establishment of the MPC drew near, we felt it was appropriate to undertake a fuller inquiry. We announced our decision to undertake an inquiry into the Monetary Policy Committee of the Bank of England: ten years on in November 2006, inviting written evidence by 24 January 2007 on four main themes, relating to the economic context, the monetary policy framework, the MPC as a body and the mechanics of setting and implementing monetary policy.[1] In February 2007 we published all of the written evidence received in order to inform subsequent exchanges in oral evidence.[2] We held five evidence sessions between March and June 2007, taking evidence from academic and City economists,[3] from representatives of the CBI,[4] the TUC,[5] and the Court of the Bank of England,[6] from Lord George, who served as Governor of the Bank of England from 1993 to 2003, from four former 'external' members of the MPC,[7] from the current Governor of the Bank of England, Mr Mervyn King, and all eight other current members of the MPC,[8] and from the then Chancellor of the Exchequer, the Rt. Hon. Gordon Brown MP. We also benefited greatly from visits to the Bank of Canada in Ottawa and the Federal Reserve Board in Washington DC and from other meetings that took place during our visit to Ottawa and Washington DC. We are most grateful to all those who assisted us in the course of our inquiry.

1   See Treasury Committee press notice No. 3 of Session 2006-07, available at Back

2   Treasury Committee, Written Evidence, HC (2006-07) 299-II. All references to Ev 1 to Ev 103 are to memoranda included in that volume. Back

3   Professor Anton Muscatelli, Heriot-Watt University, Professor Simon Wren-Lewis, Merton College, Oxford University, Mr Ray Barrell, National Institute of Economic and Social Research, Professor Tim Congdon CBE, Mr Laurence Sanders, Bank of Ireland, Mr Michael Saunders, Citigroup, and Professor Jagjit Chadha, BNP Paribas Back

4   Mr Richard Lambert, Director General, and Mr Ian McCafferty, Chief Economic Adviser Back

5   Mr Brendan Barber, General Secretary, and Mr Tim Page, Senior Policy Officer Back

6   Dr David Potter CBE, Deputy Chairman of the Non-executive Directors and Chairman of the Remuneration Committee, and Ms Amelia Fawcett CBE, Chair of the Audit Committee Back

7   Ms Marian Bell CBE, Dr DeAnne Julius CBE, Dr Sushil Wadhwani CBE and Professor Charles Goodhart CBE Back

8   Ms Rachel Lomax, Deputy Governor (Monetary Policy), Sir John Gieve, Deputy Governor (Financial Stability), Mr Charles Bean, Chief Economist and Executive Director (Monetary Analysis), Mr Paul Tucker, Executive Director, Markets, Ms Kate Barker, Professor David Blanchflower, Dr Andrew Sentance and Professor Tim Besley Back

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Prepared 18 September 2007