Announcing the U.K. Government budget on Wednesday, Chancellor George Osborne disappointed those who wanted to see a big change in the Bank of England’s mandate. The pound strengthened a bit as a result. But I don’t think those who are waiting to see the pound weaken, like me, will be disappointed for long.
The Treasury sets the goals for the Bank of England every year in a “remit letter” that it releases in March as part of the budget. The central bank’s mandate has been to keep inflation at 2 percent “at all times.” There had been a lot of talk before the budget about possible radical changes to this mandate, such as changing the period from “at all times” to “over the medium term” or “over the long term;” raising the inflation target or changing it to a band; or perhaps changing what measure of inflation they target.
In the event the chancellor made only a relatively small change. The wording of the remit remains exactly the same: that inflation should be 2 percent “at all times.” The main difference is that the new remit letter gives the central bank permission to allow inflation to exceed the target even for a fairly long period if the Monetary Policy Committee judges that eventually it will come back to its target level.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.