The Chancellor was asked by the Treasury Committee whether he agreed with the incoming Bank of England governor’s suggestion that the UK should dump inflation-targeting in favour of a focus on GDP, but avoided a direct answer beyond welcoming the international debate.
“We have an inflation-targeting regime which has served this country well and has provided stability,” he said. “If you were to move away from it Parliament would need to be satisfied that you were getting some very significant rewards.”
Osborne, who had come straight from all night negotiations in Brussels, said a credible UK fiscal policy was the main driver in keeping borrowing costs low.
“The credible fiscal policy anchors those low interest rates and enables our monetary authorities to undertake innovative monetary operations like QE and funding for lending.
“It is worth remembering that if those rates were to rise relative to other countries that would have a huge impact on the UK economy, the cost of mortgages, the cost of business and be very damaging indeed.”
