Monetary Policy Framework in the UK Essay Example | Topics and Well Written Essays - 2500 words

Monetary Policy Framework in the UK - Essay Example Stable price of products and confidence are important in controlling the inflation rate of the economy. The interest rates are controlled by the obligation of the government to control the inflation target in the economy. Hence the bank controlled the inflation rate through controlling the interest rates that are charged on the commercial banks. On the other hand financial stability includes protecting against threats to the whole financial system of a country. There are threat to the economic which are detected by the bank's surveillance and market intelligence functions which are dealt with through financial and other operations in the economy. These operations can be based at home or abroad. (Millard, 2006) All the above are important factors that are regulated through the monetary policies. In the UK, the Bank of England is bestowed with the role of a central bank. There is a monetary policy committee that deals with issues concerning the regulation of monetary policy in the economy. Throughout the history of the UK, there have been changes in the monetary policies that have helped to shape the economy of the UK. This paper will look closely at the way the monetary policies have been changing in the UK and look at the interaction that has been there between monetary polices and the inflation rate. ... This has corresponded with the changing rate of inflation in the country which has been caused by many factors. In order to streamline the performance of the economy, the monetary policies have been likewise changing with time to suit the environment. The bank of England in conjunction with the parliamentary committee have been playing crucial role in the changing of monetary policies in the country. There change in monetary policies has been corresponding with the changes in the rate of inflations. The bases of inflation control have been the use of integrated strategies to control the great demand. This has been implemented in conjunction with the banking sector which has played a crucial role in offsetting the rate of inflation in the country and likewise through the monetary policies. (Benito and Wood, 2006) The most notable change in the monetary policies in the UK has been the change that took place in the 1990 due to the changing landscape of inflation. By the standards of history, the performance of the economy under the inflation rate of this time had been unique. Between the periods of 1972 to 1992, there was recorded the lowest size of business-cycle frequency fluctuation. The unemployment-inflation trade-off displayed the greater stability was the greatest ever and the rate of inflation was the highest ever. But since then there has been historically unprecedented stability in the economy. Many economists have argued that this cannot be attributed only to the monetary framework but it can also be attributed to good luck in the performance of the macro economic policies. This has also been attributed to substantial consolidation of the fiscal policy which turned a deficit of 8% in 1993