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Macro Economic Policy Conflict for the BoE - balancing the needs of the MPC and FPC

Jonny Clark

5th April 2016

I've been doing some research today on macro economic policy conflicts in preparation for a hoped-for joint webinar between the Bank of England and tutor2u as the next instalment of our collaboration. An interesting conflict highlighted by BoE's Senior Analyst Dan Nixon is one developing between the Monetary Policy Committee and Financial Policy Committee (FPC).

The FPC was established in 2013 with the primary objective of maintaining financial stability in UK markets in order to try and prevent the kind of crash that occurred in 2007/2008. However, there is a potential conflict between the objectives of both committees. For example, if the MPC was attempting to keep inflation close to its target rate and lowered interest rates (just go with me on this, it has happened in the past!) then this would encourage more private borrowing. This change could, in turn, increase the risk to financial stability.

An awareness of the FPC (click here for the BoE page with more details) could be valuable to A Level students looking for examples of monetary policy activities of the BoE beyond just interest rate changes and QE and the existence of this conflict may prove an interesting evaluative 'however', particularly going into the greater emphasis that the new specifications have on financial markets (which I suspect many schools have left to the second year of the new linear course).

Jonny Clark

Jon Clark has been teaching economics and business studies for over 25 years primarily in the Further Education sector. Before joining tutor2u, he was a senior manager at South Cheshire College in Crewe.

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