That transparency was given a further boost by the creation of the Monetary Policy Committee where the votes of all members are published along with the minutes of the discussion at MPC meetings. Despite its record on transparency, questions have been raised about whether the MPC could go further. Do the published minutes reveal enough about individual views? Should there not be individual paragraphs in the minutes explaining the position of each member? Why does the Committee not publish a forecast corresponding to the path of interest rates that it feels most likely to be necessary to meet the inflation target? Why does the central projection of the forecast always seem to end up at close to the target of 2.5%? It is helpful to step back and ask three more fundamental questions. First, what is the MPC trying to communicate? Second, how should it communicate? Third, what is the role of the inflation forecast? The basic message which the MPC is trying to communicate is that, over the medium term, inflation should be expected to average 2.5%, and that the Committee will respond to events as they unfold in order to keep inflation on track to meet that target. Hence the Committee needs to explain its view of the current state of the economy, how and why it has reacted to events that have already unfolded, and what it believes are the risks lying ahead. All of this can be encapsulated in its “policy reaction function”.
Hence the Committee has come to the view that, by and large, it is better to wait until the publication of the minutes when a fuller view of issues and views can be provided. That is not to say that press statements will not appear in future, but to stress that their purpose is limited to explaining a decision that might be unexpected, irrespective of whether that is a change or no change in rates. On the whole, the minutes have been successful in creating a wider understanding of the issues discussed by the MPC, and have a devoted, if small, following. The Inflation Report, which pre-dates the MPC, has a broader objective in setting out a comprehensive view of the current state of the economy, and describing the outlook for inflation in terms of a forecast over a two-year horizon. The Committee puts great weight on explaining the forecast in terms of probabilities. Hence it has adopted the famous coloured fan charts for its forecasts for both growth and inflation. But there remains some confusion about the role of the forecast. With the advent of the MPC, the tensions between explaining nine individual views and presenting a coherent account of the Committee’s view of the economy have complicated the production of the forecast. The Inflation Report now contains an explicit description of differences of view among the Committee in respect of both the central projection and the risks to the forecast, as well as the “best collective judgment”, or majority view, of the outlook.