How the Bank of England can avoid stagflation
The Bank of England's chief economist Huw Pill has warned of 'radical uncertainty' in monetary policy decisions, highlighting the challenges of dealing with inflationary effects of energy shocks. The Bank's current framework, based on a 2% CPI inflation target, may be outdated and ineffective in today's world of energy shocks, trade wars, and geopolitical turmoil.
The Bank of England's chief economist Huw Pill has warned of uncertainty in monetary policy decisions. The Bank's current framework, based on a 2% CPI inflation target, may be outdated. The Bank's Monetary Policy Committee voted to hold rates at 3.75%. Britain is facing a weakening domestic economy and external price shocks, pushing inflation higher. This is classic stagflation, where inflation-targeting becomes less helpful. The Bank cannot control external shocks, but its mandate focuses on a random inflation target from two decades ago. A new framework, such as nominal GDP targeting, may be more effective in today's uncertain world.
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