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Bank of England adopts unemployment target

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Lefteris Pitarakis/AP/File

(Read caption) People walk past the Bank of England in London's financial district in June 2013. Bank of England Governor Mark Carney said Wednesday Aug. 7, 2013, the U.K.’s central bank will not consider increasing its record-low interest rate or scaling back its bond-purchasing program until unemployment falls below 7 percent.

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With average inflation above 3 percent since 2005, it has been obvious for a while that the Bank of England has in effect unilaterally decided to abandon the 2 percent inflation target the law says it should follow. Now it in effect has created a target for the unemployment rate by saying it won't consider raising interest rates until the unemployment rate falls below 7 percent.

To create the appearance that they're not completely ignoring their legal mandate, they say that if inflation is likely to be above 2.5 percent (whatever happened to 2 percent?) in the next 18 months, they might after all tighten even if unemployment is above 7 percent, but since they've been saying that inflation is likely to be 2 percent in that time range for the last eight years, that's not going to limit their inflating. This probably won't mean much change in actual policy, which was very inflationist to begin with, but the Bank of England now makes its deliberate flouting of its legal mandate to keep inflation at 2 percent explicit.

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