Osborne Says U.K. Conservatives May Alter BOE Target
Written on April 9, 2009
Britain’s Conservatives will consider changing the Bank of England’s inflation target to take more account of housing costs if they win the next election, said George Osborne, the party’s finance spokesman.
The central bank currently is required to keep inflation at 2 percent based on the consumer price index. The gauge, which doesn’t include any measure for housing, was adopted by Prime Minister Gordon Brown when he was finance minister in 2003.
“There is a considerable debate about whether the current CPI inflation target covers the full cost of living, and whether it should be broadened to include housing costs,” Osborne said in a speech in London today. “It would be wrong to try to change the inflation target now, but a change of government at a national level would provide a good opportunity to review with the governor of the Bank of England.”
The comments show support emerging for a switch in target after the election due by June next year, which polls show the Conservatives are on track to win. Bank of England policy makers have shown dissatisfaction about the current measure, and Governor Mervyn King said last month that keeping the old gauge would have been “preferable instant faxless payday loans.”
The change from the previous measure, the retail price index excluding mortgage costs, may have encouraged the central bank to keep the benchmark interest rate lower than it otherwise would have as house prices tripled between 1997 and 2007. Policy maker David Blanchflower said last month that the CPI target may have given the bank a “false steer.”
Labour trailed the Conservatives by 13 percentage points in a poll by Populus Ltd. published in the London-based Sunday Times newspaper on April 6.
As finance minister in December 2003, Brown switched the central bank’s target from RPI in preparation for the possible adoption of the euro.
Inflation on the consumer price index measure was 3.2 percent in February, more than a percentage point above the target. On the old gauge of RPI excluding mortgage costs, prices increased an annual 2.5 percent, matching the previous goal.
Filed in: business.