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Inflation, growth, manufacturing, consumers, exchange rates, exports, employment, wages......

There seems to be a long list of terms that might be relevant to the Bank of England and The Times Interest Rate Challenge. But do not be put off by this, or by the thought of too much economic theory or too many statistics, or the jargon and the "buzz" words of the day. The level of knowledge and understanding needed to take part in the Challenge is for your team to decide. It will probably be greater in some areas than others. You may want to concentrate on a few key factors. This might depend on what is being covered in the classroom or has already been taught, or what the participants think is most important for their assessment of the outlook for inflation and thus the interest rate decision. You will have to decide where to draw the line. The main requirement is that your team builds up a convincing case to justify its interest rate decision - that is the Challenge.

Monetary policy is not just about looking at inflation and interest rates. It is also about the growth of the economy, employment and, ultimately, our collective living standards. But all these considerations are framed around one policy objective - low inflation - and one policy tool - the official Bank Rate. The Challenge asks teams to set and justify an interest rate that is, in their view, consistent with meeting the Government's inflation target. Target Two Point Zero invites schools and colleges to assume the role of the Bank of England's Monetary Policy Committee and make a presentation that sets out their view on current economic conditions and future prospects, culminating in an interest rate recommendation aimed at meeting the inflation target. The inflation target is currently 2.0% and teams should decide what interest rate they would set to achieve this target.

The interest rate has to be set in the real world - it is a practical policy tool. Economic theories and concepts can guide our understanding of the economy and help to explain what we observe around us, both in the economic statistics and first-hand. But they cannot tell us what inflation will be or what the interest rate should be. Interest rate decisions depend on an interpretation of current economic conditions and events, and judgements about the likely future path of the economy. Many considerations will be relevant to the outlook for inflation - some more so than others, and to a different degree at different times. Evidence on the economic picture is often unclear or contradictory. Some factors will point to less inflationary pressure others to more. That is why judgement is central to setting interest rates. There is no complex formula to work out or a mechanical rule to follow. The interest rate decision is based on the best information that we have to hand. That is never perfect, nor does it result in a definitive or certain answer. This year, teams might want to consider the option of injecting money into, or withdrawing money from, the economy to meet the inflation target - often referred to as quantitative easing. When you are reading the resource material, you will find information and tools to help you make your monetary policy decision. But the answer will be up to you. We look forward to your economic assessment, your monetary policy decision and an imaginative presentation.

The purpose of the website is to tell you in a clear and concise manner about the main factors that are relevant to what the Challenge is all about - setting interest rates to control inflation. The resource material does not repeat what you can find in text books or in other course material, and we are not going to overload you with everything that is, in some way, connected to monetary policy. Instead, it helps to explain in a practical way how the economy and monetary policy work, and what factors determine and influence inflation and interest rate decisions. We hope the resource material will benefit you not just in the Challenge itself, but also in expanding your understanding of the economy and monetary policy more generally.

The Target Two Point Zero website contains a large amount of information. But do not be overwhelmed by this. It is designed to be a comprehensive reference source for teams to use as an aid to their preparation.

YOU DO NOT NEED TO READ AND UNDERSTAND EVERYTHING ALL AT ONCE. You can refer to the website when necessary.

The majority of schools and colleges will have access to the Internet and will prefer to use the information and data in this form. However, Internet access is not necessary to take part in the Challenge. If you participate, the resource material will be sent to you in printed form.

If you participate in the Challenge, we will contact you about this.

YOU DO NOT NEED TO TAKE ANY ACTION AT THIS STAGE.

A brief summary of each of the main sections of the Target Two Point Zero website is available on the Home page. A more detailed description can be found in the introduction to each section.

Although we will provide you with information and data that are relevant to setting interest rates, you can use whatever information you think is relevant from whatever source. You can access the Bank's regular monetary policy publications using the links below.

Interest Rate Decisions

MPC Minutes

Inflation Report

Bank of England Home Page

In addition, from 21 September 2009, The Times will run a series of fortnightly briefings in support of the Challenge. These will be in the business section and will also be on The Times' website.

We hope you find the website helpful and enjoy the challenge of setting interest rates for the UK economy. If you have any comments about the Challenge, you can e-mail us at:

targettwopointzero@bankofengland.co.uk

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