- Economists weigh up the costs of getting inflation back to 2 per cent
- Is it still the right target?
The past 18 months has seen a flurry of economic target-setting. Liz Truss briefly introduced a punchy 2.5 per cent growth target, while Rishi Sunak set halving inflation as his top priority for 2023. Next year won’t be much different: we will probably remain fixated on the 2 per cent price growth target until it is reached, which current Bank of England (BoE) estimates think will happen sometime towards the end of 2025.
On the face of it, economic targets hold a lot of appeal for policymakers. Truss hoped that an ambitious growth goal would spur confidence and help to jumpstart the economy, while Sunak’s inflation pledge was designed to enhance his reputation for economic stewardship. The BoE’s inflation target should make politicians' lives easier. In theory, if everyone expects 2 per cent inflation, businesses and workers will overlook temporary inflation surges. This leaves them less likely to increase prices and wage demands, meaning there is a greater chance that the 2 per cent target will actually be met.