Ben Broadbent, an external member of the Monetary Policy Committee (MPC), made the revelation as part of an attempt to explain the Bank’s new 7pc unemployment target, which he claimed was now more relevant than growth due to productivity bottlenecks in the economy.
Economists have long suspected the Bank was targeting growth because inflation has been well above the 2pc target for the bulk of the past five years. The Bank has always been careful to stress its inflation-fighting credentials, though.
In a speech to the London Business School, Mr Broadbent said the statistical evidence proved the MPC had used growth throughout the past decade as a proxy for the future direction of inflation.
“UK monetary policy responded sensitively, immediately and more or less uniquely to actual growth in output,” he said. “The reason, I believe, is that every acceleration in output was thought to represent a rise in output gap, signalling higher inflation risks, every drop in growth the opposite.”
With the economy now suffering from a complex productivity problem, he argued that unemployment is a better gauge of how rapidly inflation will pick up. Read on and comment » | Philip Aldrick, Economics Editor | Monday, September 23, 2013
