BoE remit change heralds ‘monetary activism’

The British government is proposing to change the remit of the Bank of England to herald in a new era of ‘monetary activism.’

The main change to the approach to monetary policy would be that the bank would signal that interest rates are being kept at a low rate as long as inflation stays below its 2% target.

“What is happening is that [George] Osborne is preparing a more open framework for Carney,” said Guy Monson, managing partner at the private bank, Sarasin.

“This is what the currency markets had been anticipating by allowing the pound to fall.

“It also gives support to the suggestion that Carney’s reign is going to be quite radical.”

Mark Carney takes over from the governor of the Bank of England, Mervyn King, in June. It is believed that Mr Carney, who is currently the head of the Canadian Central Bank, had been agitating for a change in the mandate of the Bank of England.

The bank will now have much more of a say in stoking growth in the economy — similar to the US Federal Reserve and the Bank of Canada.

Mr King had been implacably opposed to changing the bank’s remit.

There will be much greater transparency in how the Bank of England sets monetary policy.

From the August meeting onwards, the minutes of the Monetary Policy Committee meeting and a letter from the governor to the chancellor of the exchequer will both be published.

From August onwards, the committee will have to provide a commentary on the merits of using unconventional instruments in order to support the economy in the context of price stability and whether these instruments have implications for credit risk or credit allocation.

The UK economy is mired in a triple dip recession. It has embarked on an ambitious quantitative easing programme to try to stimulate growth.