UK Should Consider Raising BoE Inflation Target To 3%  

• The Resolution Foundation proposes a revision of the Bank of England's inflation target from the current 2% to 3%. This adjustment is seen as a strategic move to provide the central bank with more leeway during economic downturns and to alleviate pressure on public finances.
• A higher inflation target allows for the setting of higher nominal interest rates. This, in turn, grants the central bank the flexibility to reduce rates further during economic crises. By doing so, the Bank of England can deploy interest rate stimulus more effectively in challenging economic situations, potentially lessening the need for extensive government borrowing.
• The recommended adjustment in the inflation target is advised to be coordinated with other advanced economies. This coordination is essential to manage the potential adverse effects on the value of the British currency (sterling) that could arise from setting a higher inflation target compared to major economic regions like the United States and the eurozone.
• The report underscores the importance of adopting a more flexible monetary policy. Without such flexibility, the government's debt levels are projected to escalate significantly, possibly nearing 190% of national income within the next five decades. This increase in debt is attributed to various economic shocks and challenges that necessitate government borrowing. Addressing this issue is crucial for long-term economic sustainability and fiscal stability.

(Source: Reuters)