Inflation Control by Government of UK Economy Essay

Inflation Control by Government of UK Economy - Essay ExampleThe rate of overall fixed capital makeup in the UK is depressed by the very low level of public investment.During the 1970s and much of the 1980s the UK endured persistently high pompousness. Despite high levels of unemployment, lucre increases in the 1980s exceeded productivity growth, provoking strong upward pressure on termss. The boom of the late 1980s created a new inflationary surge, painfully controlled only by high come to rates and the early 1990s recession. Since then, however, the UKs inflation performance has improved markedly. The government has preferred measure of inflation, the RPIX (which excludes mortgage interest payments), has fluctuated within a narrow range in recent years and even came in below the official central posterior of 2.5% in 1999-2001. Meanwhile, inflation as measured by the EUs harmonised index averaged just 1.2% over 2001, the lowest rate in the EU.Two aspects of the UKs recent infl ation performance be worth recording, however. The first is that there has been a significant divergence since mid-1998 between goods and service sector inflation, with the latter accounting for most of the increase in the consumer price index. In fact, in many parts of the goods sector (notably clothing, footwear and audio-visual equipment) prices actually fell in 2000 and 2001. A second aspect worth noting is the sharp (and in all likelihood unsustainable) appreciation of sterlings trade-weighted exchange rate since 1996, which has exerted considerable downward pressure on import prices.This paper discusses the inflation control methodologies in United Kingdom from 1994 to 2004. It shall alike discuss how UK has managed its inflation in the last few decades. The paper shall also provide recommendations for inflation control by effective governance. Historical Monetary and financial policies of UKMonetary policyThe UK has experimented with numerous frameworks for monetary polic y over the past 15 years. In the 1980s, the Conservative government tried in vain to brand various measures of the money supply, before deciding to target the exchange rate. After tracking the D-mark in the late 1980s, the UK joined the EUs exchange-rate mechanism (ERM) in October 1990, only to be ejected two years later, in September 1992, when speculative pressures forced sterling out of the ERM. Following its exit, the UK was one of the first OECD countries to adopt inflation control. An inflation target range of 1-4% was initially set, but responsibility for setting interest rates remained with the government.When the Labour government came to power in 1997, its first significant decision was to assignment operational independence for setting interest rates to a newly constituted Monetary Policy Committee (MPC) within the Bank of England. The responsibility fo