According to the Financial Times, George Osborne is considering handing over more powers to the incoming Bank of England (BoE) governor Mark Carney, who will take up his position in July.
Business secretary Vince Cable suggested in this week's New Statesman that Osborne ought to ease off on his Plan A, with a new programme of spending on schools, roads and housing. Cable implies that that spending ought to be funded by extra borrowing to improve the economy.
Osborne, who is resisting the Cable's suggestions, will use his budget on 20 March 2013 to support his message of fiscal conservatism and monetary activism by clarifying how the government intends to use monetary policy to get the economy growing again, the FT reports.
Meanwhile, Treasury officials are discussing proposals to change the remit of the bank.
In the budget, the chancellor will review the 2 per cent inflation target and the bank’s operations. Options include providing the MPC more time to bring inflation back to the 2 per cent target, giving the BoE a Federal Reserve-style dual mandate to target both employment and inflation, and even targeting cash spending in the economy rather than inflation.
Carney told MPs to the Treasury select committee that:
The bar for change is high, but there should be that debate, a relatively short debate, because I don’t think prolonged uncertainty about the framework is in anybody’s interests.
In addition, Carney told colleagues that he wants debate on the monetary framework to happen before he takes his new position.
Mervyn and Paul Fisher joined economist David Miles in voting for more quantitative easing at the February MPC meeting.
Alan Clarke of Scotia Bank, told the FT:
Numerous MPC members spoke over the last week and we judge that there is no smoke without fire. The Bank is no stranger to delivering surprises and it would get more bang for its buck in terms of market reaction by delivering a QE expansion while it is still [mildly] non-consensus.