UK

The United Kingdom struggled for many years with monetary targets that were repeatedly missed, in a context of undesired exchange rate movements, before embarking on an experiment with exchange rate targeting in October 1990, whose collapse in September 1992 led to the adoption of inflation targets from 1993.

Years Targets and attainment Classification
1974-90 attempts to manage exchange rate float by both intervention and interest rates, but recurring exchange rate crises; DCE targets agreed with IMF undershot 1976/77 and 1977/78, overshot 1978/79; wide targets primarily for broad money 1976/77 to 1986/7 missed six years out of eleven, and never hit more than two years in a row, erratic convergence; renewed attention to exchange rate towards end of period including unannounced shadowing of DM February 1987-March 1988, then no specific targets until entry to ERM October 1990; monetary policy operating through OMOs, interest rates and fiscal policy, with recurring attempts to reset monetary arrangements; repeated failures to control bank lending partly offset by improved control of government debt sales loosely structured discretion LSD
1991-92 in ERM with wide margins from October 1990 to September 1992 loose exchange rate targeting LERT
1993-96 wide inflation targets under ‘new framework’ for monetary policy more or less attained loose inflation targeting LIT
1997-2014 more formal and structured inflation targeting, with central bank independence; narrow targets mostly attained; targets overshot some months between 2008 and 2011, inflation expectations rise but only briefly and within limits full inflation targeting FIT

Selected IMF references: RED 1977 pp20-1, 59-62; RED 1979 pp21-2, 43-5; RED 1982 pp47-53; RED 1986 pp62-4; RED 1988 pp20-1; RED 1991 pp21-4; SBI 1993 pp35-9; SR 1993 pp11-14; SR 1997 pp14-16; SI 1999 ch. I; SR 2013 p14.

Additional sources: Houben (2000); Cobham (2002, 2013).

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