Targeting nominal GDP instead of inflation would be ‘prudent decision’ – ITEM Club comments on today’s MPC minutes

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Nida Ali, economic advisor to the EY ITEM Club, comments on today’s MPC Minutes:

  • There is little new information about the UK’s likely monetary policy path in the coming months 
  • The Bank needs to make a clear commitment to do whatever it takes to keep the recovery on track
  • We think that targeting nominal GDP instead of inflation would be a prudent decision

“These minutes give us little new information about the UK’s monetary policy path in the coming months, with both the vote and the narrative remaining pretty much the same as last month.
 
“The Bank has been very ambivalent about their expectations for future policy changes and we think that, similar to the Fed, the Bank should make a clear commitment to doing whatever it takes to keep the recovery on track.
 
“The last few months have seen considerable debate over whether the inflation target is still relevant in the current circumstances. In our view, targeting inflation passed its sell-by date at the turn of the millennium and the time is right to start targeting nominal GDP instead. This would provide MPC members with more flexibility to take bolder steps and use unconventional tools to ease monetary policy, without losing their credibility in the process.”