Improvements to Monetary Policy Committee Transparency

This note examines changes being made to the Bank of England’s Monetary Policy Committee (MPC). These are designed to increase its transparency and accountability. They are part of a wider programme of reform to the Bank which now has greater responsibility for the UK financial system as a whole, as well as its monetary policy duties.

The changes follow a review into the transparency of monetary policy carried out for the Bank by Kevin Warsh, a former member of the Board of Governors of the US Federal Reserve. The Warsh Review made a number of recommendations. These were accepted by the Bank. Some have already been implemented. Others will require legislation. The Government will introduce a Bank of England Bill to implement some of the recommendations. The Bill will also cover a number of matters not related to the MPC, including reforms to the Bank’s Court of Directors, the Prudential Regulation Authority and the Financial Policy Committee.

There are three main changes affecting the MPC:

• Simultaneous publication of MPC’s decision, MPC minutes and the Inflation Report

• Reduction in the number of MPC meetings from 12 to 8 a year

• Publication of “Day 2” transcripts of MPC meetings after a delay of 8 years

From August 2015, the Bank will publish the MPC’s monetary policy decision, the minutes of the meeting and, in relevant months, the Inflation Report at the same time. Previously, the decision had been announced at the end of the MPC meeting. The minutes, which contain details of how each MPC member voted, were published around 2 weeks later. The Inflation Report was published between the decision and the minutes. The new arrangements mean there is no longer a delay between the MPC’s decision and details of how MPC members voted. It also brings the Bank into line with other central banks in providing an explanation at the same time as the decision is announced.

Warsh recommended reducing the number of MPC meetings from 12 to 8 a year. Warsh argued that judgements about the economy are unlikely to change over a 4 week period. Moving to 8 meetings a year would bring the Bank into line with the European Central Bank (ECB) and the US Federal Reserve. It would also give the MPC members and Bank staff more time for reflection. This change requires legislation and the Government has said that it will be included in the Bill.

The Bank has announced that it will publish transcripts of the MPC meetings at which policy is decided (but not the “deliberative” part of the meetings). The transcripts will be published after 8 years. This will improve the transparency and accountability of the MPC. It is also in response to concerns raised by the Treasury Committee about the lack of published transcripts.