Topic updates
Is the UK's inflation target fit for purpose?
![](https://tutor2u-net.imgix.net/user-photos/graham-watson.png?auto=compress%2Cformat&crop=focalpoint&fit=crop&fp-x=0.5&fp-y=0.5&h=100&q=80&w=100)
1st February 2024
Here is an excellent article in the Guardian with a Canadian academic, Louis-Philippe Rochon highlighting the arbitrary nature of the 2% inflation target. Remarkably, nearly 60 countries have adopted this as their inflation target, without there being a definitive position on why this is the case.
Of course, no-one denies that a lower target might risk deflation, and that's most probably a bad thing, but why 2%, and not 3 or 4%? This is particularly interesting in the present environment because the 2% target appears to have become a de facto default target, and the failure to hit the 'target' necessarily shapes monetary policy debates.
Equally, given the trade-off between inflation and unemployment, is there a risk that the pursuit of the 2% target imposes higher than necessary costs in terms of unemployment too.
The Bank of England has voted 6-3 to keep UK policy interest rates at a 16-year high of 5.25%. But rates may well start heading lower in the early summer if inflation falls back to target and settles there.
You might also like
Bank Lending
Study Notes
![](https://tutor2u-net.imgix.net/user-photos/gbr_profile.jpg?auto=compress%2Cformat&crop=focalpoint&fit=crop&fp-x=0.5&fp-y=0.5&h=100&q=80&w=100)
Key Decisions in the July 2015 Budget
9th July 2015
![](https://tutor2u-net.imgix.net/user-photos/gbr_profile.jpg?auto=compress%2Cformat&crop=focalpoint&fit=crop&fp-x=0.5&fp-y=0.5&h=100&q=80&w=100)
Aggregate demand low investment and corporate cash mountains
15th November 2015
Output Gap and the Economic Cycle
Topic Videos
![](https://tutor2u-net.imgix.net/user-photos/host-jimriley.png?auto=compress%2Cformat&crop=focalpoint&fit=crop&fp-x=0.5&fp-y=0.5&h=100&q=80&w=100)
Animal spirits are key in a post-Brexit world
5th October 2016
Bank of England Inflation Report - food prices
13th March 2017
UK exports and imports in six charts
28th September 2017
![](https://tutor2u-net.imgix.net/user-photos/gbr_profile.jpg?auto=compress%2Cformat&crop=focalpoint&fit=crop&fp-x=0.5&fp-y=0.5&h=100&q=80&w=100)
The Brexit Files: the hit to the UK economy
31st May 2018