Friday, August 17, 2007

The Governor and Company of the Bank of England is the central bank of the United Kingdom, and as such it convenes the Monetary Policy Committee, which is responsible for the monetary policy of the country. It was established in 1694 to act as the English Government's banker, and to this day it still acts as the banker for the UK Government. The Bank's building is located in the City of London, on Threadneedle Street, and hence it is sometimes known as The Old Lady of Threadneedle Street or The Old Lady. The current Governor of the Bank of England is Mervyn King, who took over on June 30, 2003 from Sir Edward George.

1980-86 Tracking the Money Supply.
During Thatcher's first term in office, the growth in the money supply was strictly limited to curb inflation, which was in double digits at the time she took office.
1986-92 Tracking Exchange Rates.
This policy focused on keeping Sterling stable (within a narrow range of exchange rates) against a weighted basket of European currencies. Sharp rises in interest rates in a desperate attempt to prop up the value of Sterling against this basket was a major contributor to the devaluation known as Black Wednesday.
1993-97 Tracking Broad Money.
Largely as a result of Black Wednesday, exchange rate tracking was abandoned and the BoE returned to focusing on the Money Supply.
1997 onwards Targeting CPI.
Although there has been much praise heaped on Gordon Brown for making the BoE more 'independent', arguable the greatest change he made to the bank in 1997 was not the creation of the MPC, but rather the change in the Bank's target. The bank now targets CPI inflation. The bank has been extremely successful in meeting its new target (it has only missed it on only one month since 1997), however the CPI is such a narrow measure of inflation that even with the bank hitting its targets, house price inflation has been in or near double digit growth for several years now, as has the growth in the M4 money supply.

Bank of England Changes in Targets

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