ECB vs Bank of England

January 29th, 2009 | monetary policy -

Readers Question: What are the similarities and differences between the Bank of England and the ECB? Thankyou

Inflation Target of ECB and Bank Of England

Both have an inflation target as the primary objective.

The Bank of England have a target of inflation of CPI = 2% + / – 1

The ECB have an inflation target of below, but close to, 2%. Therefore, the ECB is less tolerant of inflation going above the inflation target. Evidence suggests the ECB is less willing to cut interest rates than say the Fed or MPC of Bank of England. Some have criticised the ECB of having an anti-inflationary bias at the expense of unemployment – this will be a challenge in current recession.

Other Objectives of ECB and Bank of England

The Bank of England have a target of low inflation, but, they are also asked to consider wider macro economic implications

Low inflation is not an end in itself. It is however an important factor in helping to encourage long-term stability in the economy. Price stability is a precondition for achieving a wider economic goal of sustainable growth and employment. High inflation can be damaging to the functioning of the economy. Low inflation can help to foster sustainable long-term economic growth.
From: Monetary Policy at Bank of England

Also, we have:

The Bank’s monetary policy objective is to deliver price stability – low inflation – and, subject to that, to support the Government’s economic objectives including those for growth and employment.

Monetary policy framework

By Contrast the ECB targets just inflation

“The primary objective of the ECB’s monetary policy is to maintain price stability. The ECB aims at inflation rates of below, but close to, 2% over the medium term.”

From: ECB Monetary Policy

The ECB is of course responsible for 11 countries in the Eurozone, whearas the Bank of England is responsible for just the UK economy