LONDON (Reuters) - Business minister Vince Cable said on Wednesday he could see some merit in incorporating growth into the Bank of England’s objectives, adding his voice to an emerging debate over the bank’s mandate.
“I think the argument for having growth as part of the objectives seems eminently sensible and I think it is important we have a debate on how best that should be done,” Cable said in remarks at a think tank event in London.
He added it would be foolish to endorse any particular formula for the bank, which currently only targets inflation as it tries to boost an economy struggling to emerge from the “heart attack” of the financial crisis.
Incoming Bank of England Governor Mark Carney - who takes over in July - fuelled the debate last December when he raised the possibility of central banks targeting nominal gross domestic product, a mix of GDP and inflation.
Inflation has overshot the Bank of England’s 2 percent goal since December 2009, and its current governor Mervyn King has said he expects this to remain the case for most of 2013.
This is in line with the bank’s current interpretation of its mandate, under which it sets monetary policy to get inflation to 2 percent within 2-3 years.
Cable said the bank had shown flexibility by its policy of buying British government debt under its 375 billion pound programme of quantitative easing and effectively “putting on one side” its inflation mandate.
“We are not talking about a problem that exists today, because the Bank of England is being very flexible. The question is trying to ensure that if this crisis lingers on, that kind of pragmatism is sustained,” he added.
Chancellor George Osborne has dampened expectations of any change to the mandate, saying the bank’s inflation target had provided stability and that there would have be a very strong case before any decision to shift away from it.
A Reuters poll of economists this week found support for that view, with a majority in favour of retaining inflation targeting as the Bank’s main policy tool, despite the strategy’s role in fuelling a credit bubble that led to the 2008/9 financial crisis.
Editing by Jason Webb