One of the enormous contributions of the Monetary Policy Committee is simply to make interest rate decisions a systematic process reflecting the needs of the economy. Over 25 years, the MPC has, I think, proved a great success in institutional reform. Inflation averaged close to the 2% target, at least until 2021. People accepted that this was a good way of making technocratic judgements to meet a target set by Parliament. This chapter offers five lessons for the continuing conduct of monetary policy. Inflation targeting is a way of living not a theory of the monetary transmission mechanism; money matters; set policy in the world not in a model; abandon point forecasts and finally understand the real equilibrium or disequilibrium of the economy

This introductory chapter outlines the transformation or modernization of the Bank of England in the twenty years after 1979: how governance and accountability were transformed, and communication was accorded a greater role, as the Bank moved to policy autonomy or operational independence from the UK government. The process amounted to what might be described as an informational revolution. The transformation of macro-economic management may also be considered as part of a broader process of globalization. Central banks everywhere became much more aware of international activities and developments, and policy-makers reflected more on how the UK was affected by what went on beyond its frontiers. There was also a greater legalization: a need for legislation to define what was involved in banking, and how to regulate banking. Finally, the nature and definition of money and of monetary stability became the subject of a political debate.

The incoming Labour government immediately in 1997 set a new framework for the Bank’s operational independence, while removing debt management and transferring financial supervision to the new Financial Services Authority (FSA). The FSA would operate in a trilateral framework, in regular contact with the Bank, which established its own Financial Stability Committee in parallel to the newly created Monetary Policy Committee. But the Bank’s role was increasingly seen as primarily in setting monetary policy, with an overall inflation goal of 2.5 per cent, and the obligation to write an explanatory letter to the Chancellor of the Exchequer if the target were to be seriously missed. Chancellor Gordon Brown saw the Committee structure, with half the Committee appointed by the government, as a path to cutting down the powerful figure of the Bank Governor as an alternative economic policy-maker. The early years of the MPC were overshadowed by disputes over the resources allocated to the external (government-appointed) members of the Committee, and by increasing press attention to divisions within the MPC between ‘hawks’ and ‘doves’. By the time George stepped down as Governor in 2003, the MPC process looked highly credible.