Treasury Committee launches inquiry into monetary policy

The inquiry will focus on the effectiveness of monetary policy in meeting the inflation target, in particular the effects of holding Bank rate near zero and whether forward guidance "effectively binds the Bank to a policy course".

It will also discuss the unintended consequences of monetary policy including the impact on asset-price inflation, the housing market, financial stability and the long-term sustainability of pensions and savings income.

The Committee will also consider the significance for monetary policy of rises in bond yields since the US election and options for raising the “natural rate” of interest.

Andrew Tyrie MP, Chairman of the Treasury Committee, said: “Interest rates are stuck near zero, the Bank of England has used increasingly unconventional forms of quantitative easing, and inflation has been below the two per cent target for three years.

“The efficacy of monetary policy or otherwise, its unintended consequences, and its prospects, need careful examination.

“The Treasury Committee will continue to act as a safeguard on the operational independence of the Bank. The Treasury indemnity, which underpins parts of the Bank’s monetary policy, could all too easily encourage the Treasury, or politicians, to put undue pressure on the Bank. The Committee will examine the risks of that, too.”