Reflexiones adicionales para potenciar la inteligencia institucional

The chart below shows that long-term inflation expectations in financial markets have remained anchored since the introduction of inflation targeting. Relative to much of the post­ war period, inflation has remained low and stable since 1992. Inflation expectations fell after 1992, and again after the MPC was granted operational independence in 1997.

Market infl ation expectations and infl ation outturns, 1985-2013 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 2013 2011 2009 2007 2005 2003 2001 1999 1997 1995 1993 1991 1989 1987 1985 Introduction of inflation targeting

RPIX Target range between 1 per cent and 4 per cent

2.5 per cent below RPIX target

2.5 per cent RPIX point target

2 per cent CPI point target Introduction of

new framework

Introduction of new target

Inflation (expectations and outturns)

CPI inflation RPIX inflation Inflation expectations

Source: Office for National Statistics, Bank of England and HM Treasury calculations

The measure of inflation expectations shown is the rate implied by the gilt yield curve. This has been adjusted by -0.8 percentage points during the period of CPI inflation targeting to show approximate expectations of CPI inflation. The size of the adjustment corresponds to the average difference between RPIX and CPI inflation over the period January 1997-January 2013.

The last data points are January 2013 for CPI inflation and March 2013 for infl ation expectations.

Inflation expectations data is the monthly average rate except for March 2013, which is the average of daily rates between 1 and 14 March.

2.4 The MPC is accountable to the UK Government for the remit. The Bank of England is accountable to the UK Parliament through regular reports and evidence presented to Parliament and scrutinised by the Treasury Select Committee. The Bank is accountable to the public at large through the monthly publication of the minutes of the Monetary Policy Committee meetings and the quarterly Infl ation Reports. The remits for the MPC since 1997 have required the Governor to write an “open letter” to the Chancellor whenever inflation moves away from the target by more than one percentage point in either direction, on the day that CPI data is published. This provides a formal mechanism of transparency and accountability in the event of appreciable deviations from target. The remit set at Budget 2013 now ensures a more meaningful exchange about the MPC’s strategy to return inflation to the target after consideration of the trade-offs, by requiring the open letter from the Governor to be sent alongside the minutes of the MPC meeting that follow the

publication of CPI data. This allows the MPC time to form and communicate its strategy, referring as necessary to the latest Inflation Report and forecasts.1

2.5 The Chancellor of the Exchequer is responsible for appointing the four external members of the MPC. Members of the Court of the Bank of England and the Governor of the Bank of England are Crown appointments. A non-voting representative from the Treasury attends MPC meetings to ensure appropriate coordination of monetary and fiscal policy, including by briefing the MPC on fiscal policy developments and other areas of the Government’s economic policies. Members of the MPC do not represent particular parts of the UK. The Bank of England is responsible for monetary policy over the entire UK and is accountable to all parts of the UK through the UK Parliament.

Fiscal policy

2.6 The UK’s fiscal model is characterised by a high degree of pooling of tax revenues combined with substantial devolution of spending powers. While this model continues to evolve, notably through the devolution of tax and borrowing powers in the recent Scotland Act 2012, it aims to balance the benefits of devolved decision-making against ensuring sufficient fiscal risk-sharing to support all parts of the UK.

2.7 The Scottish Parliament is responsible for the majority of Scotland’s public spending. Much of the spending undertaken by the UK Government is on welfare payments, such as unemployment benefits, which provide an automatic stabilisation in response to an economic downturn. Following the implementation of the Scotland Act 2012, taxes devolved to the Scottish Parliament will fund around one-third of the spending for which it is responsible. Funding a substantial share of total spending through tax revenues collected at the UK level provides a way for the Scottish economy to adjust in the event of difficulty. In response to an economic downturn in Scotland, tax revenues automatically fall, relieving some of the pressure on the private sector, while spending continues to be funded by tax revenues from across the UK. The same mechanism means that Scottish tax revenues also help support the rest of the UK when the need arises.

2.8 The existence of a large, unified fiscal base and centralised borrowing also ensures better access to borrowing when this is necessary to help stabilise the economy in response to a UK-wide shock. The UK Government is able to borrow against the more certain prospects provided by a larger and more diversified tax base and in a currency over which it has full and direct control. It has a long track record of managing public finances. These characteristics ensure markets’ confidence in the UK fiscal sustainability and ensure that the UK Government can borrow at an acceptable cost when it needs to do so.

2.9 The recent global financial crisis has emphasised the importance of a credible framework for fiscal management in times of severe economic stress. The UK framework has

allowed the UK Government to support all parts of the UK during this period. Responding to weaknesses exposed by the crisis, this framework is evolving to strengthen its

effectiveness and credibility, including through the introduction of the independent Office for Budget Responsibility. The OECD commented in its latest Economic survey of the United Kingdom that the UK benefited from a “strong institutional framework, including the independent OBR, tasked with producing the official economic and fiscal forecasts”.2 1 _{The remit requires the Committee to set out the following in the open letter: the outlook for inflation and the}

reasons why inflation has moved away from target; the policy action the Committee is tabling in response; the horizon over which the Committee judges it is appropriate to return inflation to the target; the trade-off that has been made with regard to inflation and output volatility in dertermining the scale and duration of any expected deviation of inflation form the target; and how this approach meets the Government’s monetary policy objectives.

Financial stability

2.10 The Bank of England, as the UK central bank, plays an important role in the crisis

resolution aspects of financial stability by providing lender of last resort facilities to the UK’s financial sector. There are various aspects to the role of lender of last resort of a central bank and how it interacts with governments’ wider financial stability interventions. Box 2B provides more details on the function of lender of last resort and its fiscal implications. 2.11 The UK’s macroeconomic framework has continued to evolve in response to the

challenges posed by the financial crisis. The framework provides clear governance and political accountability that facilitates rapid crisis resolution decisions when the need arises. The Memorandum of Understanding of Crisis Management annexed to the Financial Services Act 2012 reinforces this framework. It makes clear that in a financial crisis, while the Bank of England continues to have operational responsibility, it is the Chancellor that is solely responsible for the commitment of public funds. This decision rests explicitly with the UK Government and not the central bank.

2.12 Through the Financial Services Act 2012,3 _{the Bank of England will be responsible for}

fi nancial stability and its Financial Policy Committee will implement macro-prudential regulation to address systemic risks with a view to protecting and enhancing the resilience of the UK financial system.