MPC prepared to overlook "period of above-target inflation"

Bank of England dashes hopes of the inflation hawks.

The Bank of England's monthly inflation report confirms that its Monetary Policy Committee is heeding the advice of incoming governor Mark Carney and accepting an "overshoot" of inflation.

Speaking to MPs last week, Carney had confirmed he favoured a flexible inflation target. While he isn't convinced scrapping the target entirely "is a risk worth taking", he stated that he accepts the need for a bit of lee-way on the price target while growth is still below trend.

Today's report from the MPC backs up that argument. The Bank writes:

As long as domestic cost and price pressures remained consistent with inflation returning to the target in the medium term, it was appropriate to look through the temporary, albeit protracted, period of above-target inflation.

Attempting to bring inflation back to the target sooner by removing the current policy stimulus more quickly than currently anticipated by financial markets would risk derailing the recovery and undershooting the inflation target in the medium term.

The MPC’s remit is to deliver price stability, but to do so in a way that avoids undesirable volatility in output.

The key reason for the bank's decision is that it doesn't see GDP increasing quick enough, soon enough, to clamp down on inflation in a way which may damage growth. It predicts GDP returning to positive annual increases, but only reaching 2 per cent annual growth — the barest which could be described as acceptable — in the second quarter of 2014. It also sees a high possibility, although still below 50 per cent, of a contraction in the second quarter of 2013:

As a result, the loosening of the inflation target sans that the bank now doesn't see the rate returning to its two per cent target until 2015:

The news sent the pound down against all major currencies:

But the greater tolerance of inflation only goes so far. The MPC gave no indication that it was inclined to increase quantitative easing, typically seen as a trade-off between growth and inflation in a demand-constrained economy. Whether that means the MPC thinks demand is no longer constrained, or whether its tolerance has limits, remains unclear.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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A progressive alliance in the Richmond by-election can scupper hard Brexit

Labour and the Greens should step aside. 

There are moments to seize and moments to let go. The Richmond by-election, triggered by Zac Goldsmith's decision to quit over a third runway at Heathrow, could be a famous turning point in the politics of our nation. Or it could be another forgettable romp home for a reactionary incumbent.

This isn’t a decision for the Tories and their conscientious objector, Goldsmith, who is pretending he isn’t the Tory candidate when he really is. Nor is it a decision for the only challenger in the seat – the Liberal Democrats.

No, the history making decision lies with Labour and the Greens. They can’t get anywhere near Zac. But they can stop him. All they need to do is get out of the way. 

If the Lib Dems get a clear run, they could defeat Zac. He is Theresa May's preferred candidate and she wants the third runway at Heathrow. He is the candidate who was strongly Leave when his voters where overwhelming Remain. And while the Tories might be hypocrites, they aren’t stupid – they won't stand an official candidate and split their vote. But will Labour and the Greens?

The case to stand is that it offers an opportunity to talk nationally and build locally. I get that – but sometimes there are bigger prizes at stake. Much bigger. This is the moment to halt "hard" Brexit in its tracks, reduce the Tories' already slim majority and reject a politician who ran a racially divisive campaign for London mayor. It’s also the moment to show the power of a progressive alliance. 

Some on the left feel that any deal that gives the Lib Dems a free run just means a Tory-lite candidate. It doesn’t. The Lib Dems under Tim Farron are not the Lib Dems under Nick Clegg. On most issues in the House of Commons, they vote with Labour.

And this isn’t about what shade of centrism you might want. It is about triggering a radical, democratic earthquake, that ensures the Tories can never win again on 24 per cent of the potential vote and that our country, its politics and institutions are democratised for good.

A progressive alliance that starts in Richmond could roll like thunder across the whole country. The foundation is the call for proportional representation. The left have to get this, or face irrelevance. We can’t fix Britain on a broken and undemocratic state. We cant impose a 21st century socialism through a left Labour vanguard or a right Labour bureaucracy. The society we want has to be built with the people – the vast majority of them. Anyway, the days of left-wing majority governments have come and gone. We live in the complexity of multi-party politics. We must adapt to it or die. 

If the Labour leadership insists on standing a candidate, then the claims to a new kind of politics turn to dust. Its just the same old politics – which isn’t working for anyone but the Tories. 

It is not against party rules to not stand a candidate – it is to promote a candidate from another party. So the way is clear. And while such an arrangement can't just be imposed on local parties, our national leaders, in all the progressive parties, have a duty to lead and be brave. Some in Labour, like Lisa Nandy, Clive Lewis and Jonathan Reynolds, are already being brave.

We can wake up the Friday after the Richmond Park by-election to Goldsmith's beaming smile. Or we can wake up smiling ourselves – knowing we did what it took to beat the Tories, and kickstart the democratic and political revolution this country so desperately needs.


Neal Lawson is chair of the pressure group Compass, which brings together progressives from all parties and none. His views on internal Labour matters are personal ones.