Do UK central bankers think about anything other than inflation?

David Smith has an

interesting piece today about the Bank of England. The Bank kept

rates on hold at its last meeting, but it could easily have hiked: the markets

were on tenterhooks as the annoucement approached. (When was the last time you

could say that about the ECB or the Fed?)

The BoE operates under an inflation-targeting system, and inflation is high

in the UK at the moment, mainly because of a one-off spike in UK energy costs.

Says Smith, a little waspishly:

Perhaps we have reason to be grateful to the utility firms, farmers and food

retailers, and even to the government for increasing university fees. Why

so? In the absence of above-target inflation it would have been harder for

the MPC to have raised rates. Yet the economy’s exuberance — strong

growth, buoyant housing and a six-year high for the stock market — justified

at least some monetary tightening.

Some would say, indeed, the Bank’s problem is that it is obliged to

focus on the inflation target when a more rounded approach to monetary policy

might suggest higher interest rates.

MPC members, of course are going to try their best to set the best monetary

policy they can, while at the same time thinking first and foremost about their

inflation target. If asset prices are skyrocketing and GDP figures are coming

in strong, however, then they might find it just a little bit easier,

all other things being equal, to hike rates. That’s the good thing about having

a rate-setting committee made up of humans. You can give them as narrow a mandate

as you like, but if they’re smart, they’re still going to see the bigger picture.