Q. Would the Bank of England have raised interest rates if inflation had been below target? - R.S., Lancaster
A. Good question, and one the Bank's monetary policy committee may soon have to confront. The new inflation measure, based on the harmonised index, is likely to be below its 2% target when the Bank is required to adopt it, probably in January. We cannot know whether rates would have risen if inflation on the existing measure (RPIX) had been below target, rather than slightly above it. There is, however, nothing to stop the Bank putting up rates from a below-target position if it has good reason to believe inflation is likely to rise in the coming months.
Can you tell me a little about monetary policy and whether it is more useful than fiscal policy in controlling the economy.
Posted by: hassan saeid at February 16, 2007 01:28 PMThat's a big question. Monetary policy is more effective for short-term economic management than fiscal policy. But I suggest you get hold of a copy of my book Free Lunch, which explains it all in straightforward terms.
Posted by: David Smith at February 16, 2007 04:38 PM
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