Treasury Committee press notice no.03

Session 2006-07, 21 November 2006

Treasury Committee announces new inquiry into ‘The Monetary Policy Committee of the Bank of England: ten years on’

On 6 May 1997, the Government announced a change in the monetary policy framework of the United Kingdom. The Treasury Committee has decided to undertake a major inquiry into the operation and success of the Monetary Policy Committee (MPC) of the Bank of England over the last ten years, and any changes that may be needed for the challenges the MPC may face in its next decade.

The Committee seeks submissions of written evidence focussing on the following four areas:

1.The economic context;

2.The monetary policy framework;

3.The MPC as a body;

4.The mechanics of setting and implementing monetary policy.

The next sections of this press notice provide further information on evidence the Committee is seeking in each of these four areas.

1.The economic context;

The Committee invites evidence on economic backdrop to the Monetary Policy Committee’s first ten years, and also any future risks from the economic environment in the next ten years. Those submitting evidence that places the last ten years of MPC decisions in an economic context would be most welcome. Topics of interest include, but are not limited to:
•How will the economic context in the next decade compare with that in which the MPC has operated in its first decade, and how will this affect the work of the MPC?
•To what degree has the performance of monetary policy since May 1997 been a reflection of the economic context, rather than the institutional arrangements?
•How should the Bank treat movements in asset and house price inflation?
•The implications in movements of the different measures of money supply, credit and liquidity.
•What effect the build-up of household debt has had, or should have, on monetary policy;
•The relationship between monetary policy and structural changes in labour and product markets;
•How can the relationship between investment and monetary policy be characterised over the past decade and how might it change in future?
•The relationship between the monetary and fiscal policy frameworks, and overall policy coordination;
•Developments in the transmission mechanism;
•The relationship between monetary policy and globalisation.

2.The monetary policy framework

Example topics of interest for this section include:
•The level, measure and symmetrical nature of the target, including the move to CPI from RPIX;
•Whether the Bank and the MPC have had sufficient regard to the economic policy of the Government when setting interest rates, and whether the statutory objectives of the Bank are appropriate;
•Whether the way in which the inflation target is set is appropriate;
•Whether the monthly frequency of MPC meetings is appropriate;
•Whether the sanction of the Governor of the Bank of England writing a letter to the Chancellor when inflation moves 1% either side of the target level is appropriate.

3.The MPC as a body

Topics of interest again include, but are not limited to:
•Is the size and composition of the MPC, including the balance between 'internal' and 'external' members, appropriate?
•Is the appointment process for members of the MPC appropriate and is the MPC attracting the right members?
•What should the role of the Treasury Select Committee be in the appointment process?
•Are the terms of members of the MPC appropriate and should 'external' members be eligible for re-appointment?

4.The mechanics of setting and implementing monetary policy.
Topics of interest again include, but are not limited to:

•Are the Bank and the MPC transparent enough?
•Can improvements be made to how the MPC explains its position, either via the inflation report, speeches, or press conferences?
•Should the Bank undertake more work to educate the public on monetary policy issues?
•Has the Bank, in its recent reforms, improved its money market operations? Are further changes needed?
• Are 'external' MPC members properly supported by the Bank in their roles?
• Are the Bank’s capabilities, both in terms of economic modelling and data availability, ‘fit for purpose’?
• Are the methods of ensuring the accountability of the MPC, including via the Treasury Committee, appropriate and satisfactory?
• How has the Court of the Bank of England performed its functions in relation to the MPC and what role should the Court play in future?
• Do the MPC’s considerations adequately reflect the economic conditions faced by the UK’s regions?

This inquiry will not cover, except insofar as they relate to monetary policy, the loss of banking supervision or the tripartite memorandum of understanding on financial stability.

Written evidence
Written evidence should reach the Committee by 12 noon on Wednesday 24 January 2007. The Committee intends to publish the written evidence it receives prior to the oral evidence sessions commencing, and therefore this deadline must be adhered to. Written evidence received after this date (other than supplementary evidence from those who have previously submitted evidence) is unlikely to be printed. Where appropriate, please prepare written evidence by reference to the areas and topics set out above, though those submitting evidence should feel free to include other matters within the scope of this inquiry.

The Committee expects to publish a report of its findings.

Further information for those submitting written evidence is available from