Flexibility means that inflation does not have to be within the target at all times; instead, policymakers will look through passing shocks – for example, during the temporary departure from the target in August 2013, which was driven by petrol prices. Flexibility also means avoiding abrupt interest rate movements which might destabilise the economy.
Our policy instruments act with a lag, with interest rate decisions taken today only having their full impact on inflation in about 18 to 24 months time. In my remarks to you this evening, I will expand on the role of the forecast in monetary policy decision making at the Bank.