More on Monetary Policy
A principal objective of any central bank is to safeguard the value of the currency in terms of what it will purchase. Rising prices – inflation – reduces the value of money. Monetary policy is directed to achieving this objective and providing a framework for non-inflationary economic growth. As in most other developed countries, monetary policy operates in the UK mainly through influencing the price of money – the interest rate. In May 1997 the Government gave the Bank independence to set monetary policy by deciding the level of interest rates to meet the Government's inflation target – currently 2%.
Low inflation is not an end in itself. It is however an important
factor in helping to encourage long-term stability in the economy.
Price stability is a precondition for achieving a wider economic
goal of sustainable growth and employment. High inflation can
be damaging to the functioning of the economy. Low inflation
can help to foster sustainable long-term economic growth.
