THE Governor of the Bank of England once famously said that monetary policy should be boring. In other words, monetary policy should be run in such a way that changes in interest rates are reasonably predictable, relatively infrequent and so that inflation and interest rates do not get out of hand.
Certainly, monetary policy is not nearly as "interesting" as it was 15 years ago when Britain was fighting to stay in the ERM, interest rates were routinely in double figures and bankruptcies were running at record levels. Nevertheless, recent rises in inflation and interest rates have led some people to worry about what lies ahead.
Although the particular measure of inflation that the Bank of England targets is three per cent, we should remember that the more general measure of inflation targeted by the Bank of England until the Chancellor changed the target for purely political reasons is running at 3.8 per cent. It is clear from the Bank of England's research and public pronouncements that it did not expect recent increases in inflation to happen.
So what has gone wrong?
We can get some clues by looking at the minutes of the Institute of Economic Affairs's Shad