A year of living dangerously

Article Abstract:

The United Kingdom economy has seen inflation at just above 2.5% and growth above the long-term average. Growth could slow due to the high value of pound sterling affecting exports, and tighter fiscal policy. The Monetary Policy Committee of the Bank of England has to decide on interest rate polciy and appears to argue that it is better to have interest rates too high than too low. High interest rates can be lowered rapidly, but inflation cannot be brought under control with such ease.

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Western Europe

Article Abstract:

European Union countries are enjoying a stronger economic recovery in 2nd qtr 1997 and inflation has remained low. The German Bundesbank will take into account conditions in countries taking part in European monetary union (Emu) as well as conditions in Germany when setting interest rates. This is a new policy, and the aim is to avoid inflationary pressure on the European Central Bank from 1999. Germany and five other European Union countries increased their interest rates in Oct 1997.

Western Europe, Monetary unions, Deutsche Bundesbank

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The new monetary policy framework

Article Abstract:

The Bank of England has been given responsibility for UK short term interest rates, while the government sets the inflation target. This measure does not preclude mistakes, but financial markets have responded well and average interest rates may drop if inflation expectations change. The Bank of England still has no power to set inflation targets and the UK target of 2% or under could be too low to give the flexibility needed over economic cycles.

Monetary policy

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