&nbsp.&nbsp.&nbsp.&nbsp.&nbsp.&nbsp.&nbsp.&nbsp.&nbsp.&nbsp.&nbsp. To have a look at how exactly the UK economy functions, we will have a look at the way the economy is regulated. Any government has the power to regulate the economy of a country and not only does it regulate the economy, it has a vital role to ensure that the economic condition remains stable. It is the responsibility of the government to ensure that all the aspects of economy maintain a stable level so that the country can grow and expand. Government regulates many things in an economy including inflation, exports and imports, prices of many vital commodities, and many important economic aspects.
&nbsp.&nbsp.&nbsp.&nbsp.&nbsp.&nbsp.&nbsp.&nbsp.&nbsp.&nbsp. Government of England has entrusted the job of determining the monetary policy, in the hands of Bank of England. Bank of England looks into many other big issues. One of the most important issues is that of ensuring monetary stability in the economy, which can be achieved through a combination of stable prices of goods and services across the economy coupled with a low inflation level and level of confidence of the investors in the currency of the country. The Bank comes out with the monetary policy in order to ensure a certain key objectives like, delivering price stability with a low inflation level coupled with an objective to support the Government’s economic objectives of growth and employment. Price stability is taken care of, by the Government’s usual inflation target of 2%. There is a need to contemplate the crucial and critical role played by price stability in achieving the aforesaid economic stability., and in providing just the right conditions for a sustainable and longer living growth in output and employment. Chancellor of the Exchequer announces the Government’s inflation target every year in the annual Budget statement. Though The 1998 Bank of England Act enables it to set interest rates independently, however, The Bank does hold accountability to the parliament and the wider public, which can not be refrained from. The legislation provides the government the power to instruct the bank on the interest rates issues for a limited period of time during emergency, for the sake of national interests. (How Monetary Policy Works)
The inflation target of 2% depicts the target in terms of an annual rate of inflation based on the Consumer Prices Index (CPI). The government’s intention is definitely not to achieve the lowest possible inflation rate, as a low inflation is supposed to be equally bad as a high one and for that matter inflation below the target of 2% is judged to be as worse as inflation above the predefined target. The inflation target is therefore very symmetrical. (How Monetary Policy Works)
If the Bank misses the target just by a margin of more than 1 percentage points on any side, be it up or down, the Governor of the Bank is required to write an open letter to the Chancellor explaining all the reasons as to why it happened and why inflation increased or fell to such an extent and what are the proposals to ensure that inflation comes back to the target

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