Remit changed in hunt for growth
Chancellor George Osborne has unveiled the first overhaul of the Bank of England's remit in nearly a decade under plans for "monetary activism" in the face of sharp growth downgrades and higher borrowing.
While confirming the inflation target would remain at 2%, Mr Osborne gave the central bank room to loosen monetary policy by also focusing on economic growth with the freedom to explore "unconventional" measures.
But the changes came as a disappointment to some economists, who had been hoping for more radical action.
The remit review also came against a grim backdrop of lower growth and higher-than-expected borrowing revealed in the Budget as the independent tax and spending watchdog the Office for Budget Responsibility delivered another painful set of forecasts.
The OBR said the UK would narrowly avoid a triple dip recession by eking out growth of 0.1% this quarter, but it halved its growth predictions for the year as a whole to 0.6%, while it said the Government would have to borrow nearly £60 billion more than expected by 2017/18.
In the year to March, the OBR now expects the Government to borrow £86 billion, £108 billion in the 2013/14 year, £97 billion in the following year, falling to £87 billion, £61 billion and £42 billion in the following years to 2017/18.
It ruled once more that Mr Osborne will breach his rule that the ratio of net debt to gross domestic product (GDP) will be falling by 2015/16. Debt as a ratio of GDP will now not fall until 2017/18 - two years later than planned.
The Bank's new remit explicitly allows the Bank to be flexible in its targeting and Mr Osborne has asked the Bank's Monetary Policy Committee (MPC) to report back on the use of so-called "intermediate thresholds", such as economic stability measures, in its August inflation report.
Policymakers will also be able to provide forward-looking guidance on rates and inflation.
Mr Osborne said Bank governor Sir Mervyn King and his successor Mark Carney, who takes over in July, had agreed to the new remit and for the MPC to use "unconventional monetary instruments".