Monetary Policy: Inflation Targeting

Inflation targeting is the cornerstone of the UK's monetary policy framework. Since 1992, when the UK adopted an explicit inflation target following its exit from the European Exchange Rate Mechanism (ERM), the framework has evolved into one of the most studied and widely imitated approaches to central banking in the world.

Key Definition: Inflation targeting is a monetary policy framework in which the central bank is given a specific, publicly announced numerical target for inflation and uses its policy instruments (primarily interest rates) to achieve that target over a defined time horizon.

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History of UK Inflation Targeting