The Bank of England has only managed to keep inflation at its target rate for 30 per cent of the time since it gained independence in 1997, data has found.
Data from Newspage showed that, over the past 27 years, the bank has missed its inflation target of 2 per cent for 70 per cent of the time, with inflation straying above the target the majority of the time.
While the data acknowledged some of these instances were down to factors outside of the central bank’s control, such as the Global Financial Crisis, it begs the question of whether the government should set a more flexible target.
Albion Financial Advice director, Dariusz Karpowicz, said relying solely on changing interest rates to control inflation is “akin to trying to steer a ship with just a paddle”.
He explained that modern economies are “complex beasts”, and that the UK needs a more nuanced approach than simply setting a target and crossing our fingers.
“Perhaps it’s time for the Bank to rethink its strategy, balancing inflation control with economic growth and stability,” he added.
A similar sentiment was shared by Barnsdale Financial Management principal adviser, Scott Taylor-Barr, who said the idea that the Bank could keep inflation at exactly 2 per cent month-after-month is “farcical”.
“The 2 per cent target is set by the government and not the Bank, so it is the Chancellor of the Exchequer that needs to look at this and make an amendment to the task they are asking the MPC to achieve,” he explained.
“An acceptable range of inflation would make far more sense and allow the Bank to be more effective, keeping inflation between 1 per cent and 3 per cent for example, would be more useful in the real world.”
Additionally, Orchard Financial Advisers managing director, Ben Perks, pointed out the outdated nature of the target, saying: “The Bank of England is striving to hit a target that pre-dates the Nokia 3210.”
He described the current arrangement as “baffling” especially considering the low success rate, and due to the fact “our economy is much more robust and diverse than it was in the nineties”.
“We do much more business globally, which makes us susceptible to events around the world. A ‘one-size-fits-all’ 2 per cent target is no longer practical or fit for purpose,” Perks added.
“We need targets that are constantly under review.”
Meanwhile, Lodestone Mortgages & Protection director, Craig Fish, called for a change to the current target format.
“The dynamics of inflation and the factors that have an effect on it have changed dramatically over the years, rendering the current arrangement null and void,” he explained.
“It would be far better if this was brought under the control of the Chancellor of the Exchequer and reviewed at least annually, perhaps even bi-annually.”
tom.dunstan@ft.com
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