Monetary policy in Britain since 1985

Monetary policy in Britain after 1985 was focused on controlling the demand for money via the interest rate policy. The basic part of this policy was the emergence of the exchange rate as a target. The exchange rate was emerged after the collapse of the MTFS which role was to reduce inflation by reducing the growth rate of the broad money (M3) supply, while reducing the PSBR. This policy was not very successful since on most …

…result, it was not at all clear what motivated decisions to move or keep steady interest rates. However British inflation targeting has helped produce lower and more stable inflation by the correct assignment of monetary policy instruments. This success can be attributed to the Bank of England’s transparency and the effective explanation of monetary policy strategy. Indeed the Bank of England’s achievements has been emulated by many other central banks pursuing inflation targeting.