The Bank of England Celebrates NICE Decade

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Byline: By Russell Lynch

The Bank of England celebrated the 1 0th anniversary of its independence to set interest rates on Sunday.

Experts have labelled the period the "NICE" decade - non-inflationary constant expansion. But that may be coming to end amid future prospects that are not so certain.

The decision chancellor Gordon Brown made to take the politics out of interest rate decisions was less than a week after Labour's landslide election victory in 1997.

Since then, the bank's governor, Mervyn King, and his predecessor, Lord (Eddie) George, have enjoyed relative success in controlling inflation.

Over the past ten years, Retail Price Index (RPI) inflation has stood at an average of 2.7 per cent over the past 10 years, far lower than the 4.5 per cent recorded in the previous decade.

But ironically, the anniversary comes less than a month after Mr King was forced to write the first open letter to the Government because of missing the inflation target.

The brief of the Bank of England's (BoE's) monetary policy committee (MPC) is to keep Consumer Price Index (CPI) inflation - the bank's yardstick since December 2003 - within one per cent above or below the Bank's two per cent target.

But rising oil, food and furniture prices pushed inflation to 3.1 per cent during March.

This new pressure could herald the beginning of what Mr King has labelled the "Not So Bad" era - not of the same order, but also desirable.

Mr King - who is the only member to have served on the committee for all 10 years - admitted last week that the course of the economy had been steadier than expected. He told economists: "It is the stability of the UK economy which appears to be the most marked contribution of the MPC. "That is a surprise."

But he contrasted the current climate with the 1970s, when inflation averaged 13 per cent a year and peaked at 27 per cent, and said that the bank's independence had heralded a "sea change" in the way monetary policy was managed. The open and accountable majority voting of the MPC, comprised of five BoE staff and four external members, "amounted to a revolution" in how interest rate decisions were made, the Governor said. Investec's chief economist Philip Shaw said the MPC had done an "excellent job" in a benign global economic landscape. He said: "Inflation has been brought under control and that has spilled over into a greater stability for the economy. "The MPC has done a superb job although it can't take all the credit, as we have had a period of global disinflation (reduced inflationary pressures) over the past 10 years."

Homeowners have enjoyed lower and more stable borrowing costs over the past 10 years since millions were crippled with interest rates peaking at 15 per cent between October 1989 and October 1990. …