The Monetary Policy Committee (MPC) is a committee of the Bank of England, which meets for three and a half days, eight times a year, to decide the official interest rate in the United Kingdom (the Bank of England Base Rate).

It is also responsible for directing other aspects of the government's monetary policy framework, such as quantitative easing and forward guidance. The Committee comprises nine members, including the Governor of the Bank of England, and is responsible primarily for keeping the Consumer Price Index (CPI) measure of inflation close to a target set by the government, currently 2% per year (as of 2019). Its secondary aim – to support growth and employment – was reinforced in March 2013.

Announced on 6 May 1997, only five days after that year's General Election, and officially given operational responsibility for setting interest rates in the Bank of England Act 1998, the committee was designed to be independent of political interference and thus to add credibility to interest rate decisions. Each member has one vote, for which they are held to account: full minutes of each meeting are published alongside the committee's monetary policy decisions, and members are regularly called before the Treasury Select Committee, as well as speaking to wider audiences at events during the year.

Purpose

thumb|249x249px|The MPC are asked to keep the Consumer Price Index at 2% per year.

The committee is responsible for formulating the United Kingdom's monetary policy, most commonly via the setting of the rate at it which it lends to banks (officially the Bank of England Base Rate or BOEBR for short). The secondary aim of the committee is to support the government's economic policies, and help it meet its targets for growth and employment. The MPC is not responsible for fiscal policy, which is handled by the Treasury itself, The committee had already started to cut rates the previous autumn, but the effect of such changes can take up to two years and rates cannot go below zero. By March 2009, faced with very low levels on inflation and interest rates already at 0.5%, the MPC voted to start the process of quantitative easing (QE) – the injection of money directly into the economy – via the APF. It had the Bank buy government bonds (gilts), along with a smaller amount of high-quality debt issued by private companies. Although non-gilts initially made up a non-negligible part of the APF portfolio, as of May 2015 the entirety of the APF was held as gilts. On 7 August 2013, Governor Mark Carney issued the committee's first forward guidance as a third tool for controlling future inflation.

Criticism of the MPC has centred on its predominant focus on inflation to the detriment of growth and employment, and about the extent to which the introduction and management of QE have risked politicising the committee.

History

Traditionally, the Treasury set interest rates. After reforms in 1992, officials held regular meetings and published minutes, but were not independent of government.). The act gave the government responsibility for specifying its price stability target and growth and employment objectives at least annually. The original inflation target the government set for the MPC was 2.5% per year on the RPI-X measure of inflation, but in 2003 this was changed to 2% on CPI.

The years 1998 to 2006 witnessed an unprecedented period of price stability – during which inflation stayed within a percentage point of the target – despite earlier predictions that it could sit outside the range forty or more per cent of the time. A 2007 report produced for the Treasury Committee noted that the MPC's independence of government "has reduced the scope for short-term political considerations to enter into the determination of interest rates". The creation of the MPC, it said, brought with it "an immediate credibility gain".

However, the 2008 financial crisis ended this period of stability, and, on 16 April 2007, the governor (at that time Mervyn King), was obliged to write the first MPC open letter to the chancellor (Gordon Brown), explaining why the inflation had deviated from the target of 2% per year by more than one percentage point (3.1%). By February 2013, he had had to write 14 such letters to chancellors. Between October 2008 and March 2009 the base rate was cut six times to an all-time low of 0.5% in order to avoid deflation and spur growth. In March 2009, the MPC launched a programme of quantitative easing, initially injecting £75 billion into the economy. By March 2010, it had also increased the amount of money set aside for quantitative easing to £200 billion, a figure later increased by a further £75 billion in the months following October 2011. The MPC announced two further £50 billion rounds of quantitative easing in February and July 2012, bringing the total to £375 billion whilst simultaneously keeping the base rate at 0.5%. This was followed by deflation of 0.1% in April 2015, the first month of negative CPI growth since the 1960s, and triggering a second letter. As of February 2015, Carney has written five such letters. Following the UK's vote to leave the European Union in June 2016, the MPC cut the base rate from 0.5% to 0.25%, the first change since March 2009. At the same time, it announced a further round of quantitative easing, valued at £60 billion, bringing the total to £435 billion.

Composition

Following a reshuffle in April 2014, the committee currently comprises:

  • The Governor of the Bank
  • The three Deputy Governors for Monetary Policy, Financial Stability and Markets and Banking
  • The Bank's Chief Economist
  • Four external members, appointed by the Chancellor of the Exchequer for a renewable three-year term

Each member has one vote of equal weight, The May 2015 meeting was similarly delayed.

On the first day of the three, the Committee studies data relating to the UK economy, as well as the worldwide economy, presented by the Bank's economists and regional representatives, and topics for discussion are identified and addressed. Following a procedural change in 2015, minutes of each meeting (including the policy preference of each member) are published on the Bank's website at the same time as any decision is announced, resulting in a "Super Thursday" effect. Prior to August 2015, the committee's decisions were published at noon on the final day of the meeting, but there was a two-week delay before any minutes were published. Starting with the March 2015 meeting, full transcripts of meetings will also be published, albeit after an eight-year delay.

  • Andrew Bailey (16 March 2020 – 15 March 2028, Governor)
  • Clare Lombardelli (1 July 2024 – 30 June 2029, Deputy Governor for Monetary Policy)
  • Dave Ramsden (1 September 2017 – 31 August 2027, Deputy Governor for Markets and Banking)
  • Sarah Breeden (1 November 2023 – 31 October 2028, Deputy Governor for Financial Stability)
  • Huw Pill (6 September 2021 – 5 September 2027, Chief Economist and Executive Director for Monetary Analysis)
  • Alan Taylor (2 September 2024 – 1 September 2027, external member)
  • Catherine L. Mann (1 September 2021 – 31 August 2027, external member)
  • Swati Dhingra (9 August 2022 – 8 August 2028, external member)
  • Megan Greene (5 July 2023 – 4 July 2026, external member)

Other, former members of the committee by date of appointment are:

  • Christopher Allsopp (June 2000 – May 2003)
  • Dame Kate Barker (June 2001 – May 2010)
  • Charles Bean (October 2000 – June 2014)
  • Marian Bell (June 2002 – June 2005)
  • Tim Besley (September 2006 – August 2009)
  • David Blanchflower (June 2006 – May 2009)
  • Ben Broadbent (July 2014 – June 2024)
  • Willem Buiter (June 1997 – May 2000)
  • Sir Alan Budd (December 1997 – May 1999)
  • Mark Carney (July 2013 – March 2020)
  • David Clementi (September 1997 – August 2002)
  • Jon Cunliffe (November 2013 – October 2023)
  • Spencer Dale (July 2008 – May 2014)
  • Howard Davies (June – July 1997)
  • Paul Fisher (March 2009 – July 2014)
  • Kristin Forbes (July 2014 – June 2017)
  • Sir Edward George (June 1997 – June 2003)
  • Sir John Gieve (16 January 2006 – March 2009)
  • Charles Goodhart (June 1997 – May 2000)
  • Andy Haldane (1 June 2014 – June 2021)
  • Jonathan Haskel (September 2018 – August 2024)
  • Charlotte Hogg (March 2017 – 28 April 2017)
  • Dame DeAnne Julius (September 1997 – May 2001)
  • Mervyn King (June 1997 – June 2013)
  • Richard Lambert (June 2003 – March 2006)
  • Sir Andrew Large (September 2002 – January 2006)
  • Rachel Lomax (July 2003 – June 2008)
  • Ian McCafferty (September 2012 – August 2018)
  • David Miles (June 2009 – August 2015)
  • Stephen Nickell (June 2000 – May 2006)
  • Adam Posen (September 2009 – August 2012)
  • Michael Saunders (9 August 2016 – 9 August 2022)
  • Andrew Sentance (October 2006 – May 2011)
  • Nemat Shafik (August 2014 – February 2017)
  • Silvana Tenreyro (5 July 2017 – 4 July 2023)
  • Paul Tucker (June 2002 – 20 October 2013)
  • Sir John Vickers (June 1998 – September 2000)
  • Gertjan Vlieghe (September 2015 – August 2021)
  • Ian Plenderleith (June 1997 – May 2002)
  • Sushil Wadhwani (June 1999 – May 2002)
  • David Walton (July 2005 – 21 June 2006)
  • Martin Weale (August 2010 – July 2016)

The dates listed show when their current terms of appointment are due to, or did, end.

As of January 2008, Mervyn King, the Bank of England's then Governor, was the only MPC member to have taken part in every meeting since 1997. As a result, after the MPC meeting in July 2013, the first after King retired, no single member had attended every meeting. As of 2016, Kate Barker is the only external member to date to have been appointed for three terms, each lasting three years.

See also

  • Federal Open Market Committee, the equivalent structure in the United States' Federal Reserve System

Notes

References

  • Official homepage of the MPC
  • Spreadsheet showing MPC votes since 1997
  • Monetary Policy Committee Minutes
  • A comparison of the MPC and its counterparts in other countries
  • Bank of England Act 1998 (full text)