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Mark Carney suggests targeting economic output

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Mark Carney, who will take over as governor of the Bank of England next year, has suggested targeting economic output instead of inflation.

At the moment, the Bank’s job is to aim for an inflation target of 2%.

Targeting gross domestic product (GDP) that has not been adjusted for inflation would mean the economy would have to catch up with previous shortfalls, Mr Carney said in a speech.

He said it might be a good option when interest rates were near zero.

Mr Carney is currently governor of the Bank of Canada.

He said one problem with changing the target would be that “people must generally understand what the central bank is doing – an admittedly high bar”.

It was his first speech since the unexpected announcement of his appointment to the Bank of England top job.

Targeting the country’s economic output rather than inflation would be a major change to monetary policy, although it is not within the power of the Bank to change its target.

Targeting inflation has been a key plank of economic orthodoxy around the world for decades.

Mr Carney also suggested that a central bank could make it clear how high inflation or unemployment would have to go before interest rates would be increased.

He said that people would have to be confident that rates would stay very low even if there was a small rise in inflation above the target level, because otherwise, low rates would be a less effective stimulus to the economy.



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