Healey Reconfirms 2% CPI Target and Keeps Asset Purchase Facility

Chancellor of the Exchequer John Healey published the remit letter for the Bank of England’s Monetary Policy Committee on October 28, 2026, reconfirming the 2 percent inflation target measured by the 12-month increase in the Consumer Prices Index and confirming that the Asset Purchase Facility will remain in place for the financial year 2027-28. The Bank of England and HM Treasury both published the letter to Governor Andrew Bailey, with the Treasury release issued alongside Budget 2026.

In the letter, Healey wrote that the inflation target of 2 percent is symmetric and applies at all times, reflecting the primacy of price stability and the forward-looking inflation target in the UK monetary policy framework. He confirmed that the Asset Purchase Facility will remain in place “for the financial year 2027-28, and for as long as is needed,” consistent with the multiyear strategy set out by the MPC on September 17, 2026. The letter and the attached remit were copied to the Chairs of the Treasury Committee and the Economic Affairs Committee.

The Bank of England Act 1998 requires the Treasury, at least once in every period of 12 months beginning on June 1, to specify how price stability should be defined and what the economic policy of the government consists of, according to HM Treasury’s publication page. The document, titled “Monetary policy remit: Budget 2026,” was published on October 28, 2026.

Healey wrote that economic growth and raising living standards are at the heart of the government, and that low and stable inflation is essential for long-term economic growth and sustained increases in living standards because it reduces uncertainty and eases costs for consumers and businesses. The government respects and fully supports the operational independence of the MPC, the letter stated. Higher energy prices resulting from the conflict in the Middle East are putting upwards pressure on inflation, Healey wrote, adding that monetary policy remains vital in supporting households and businesses by ensuring inflation returns to target sustainably in the medium term.

Target Framework and the Open-Letter Trigger

The remit describes the inflation target as forward-looking to ensure inflation expectations remain firmly anchored in the medium term. It recognizes that the actual inflation rate will on occasion depart from its target as a result of shocks and disturbances, and that attempts to keep inflation at target in those circumstances may cause undesirable volatility in output. The Committee may therefore wish to allow inflation to deviate from the target temporarily.

Where attempts to keep inflation at target could exacerbate the development of imbalances that the Financial Policy Committee may judge to represent a potential risk to financial stability, the remit states that the FPC’s macroprudential tools are the first line of defense against such risks. In those circumstances, the MPC may wish to allow inflation to deviate from the target temporarily, consistent with its need to have regard to the FPC’s policy actions.

The remit requires the Committee’s communications to set out the outlook for inflation and the reasons for any actual or expected deviation from target, the policy action the Committee is taking in response, the horizon over which it judges it appropriate to return inflation to target, the trade-off made with regard to inflation and output variability, and how the approach meets the government’s monetary policy objectives.

If inflation moves away from the target by more than 1 percentage point in either direction, the Governor is expected to send an open letter to the Chancellor, published alongside the minutes of the following MPC meeting. Where the Office for National Statistics releases the relevant inflation data after a meeting of the Committee has commenced and before the minutes of that meeting are published, a letter is expected within seven days of the publication of the data. The Governor would send a further letter if inflation remains more than 1 percentage point above or below the target after three months. The remit states that the thresholds do not define a target range; their function is to define the points at which an explanatory letter is expected because the actual inflation rate is appreciably away from its target.

Unconventional Instruments, Economic Policy and Accountability

The remit permits the Committee to use unconventional policy instruments when the conventional policy instrument has approached its effective lower bound, and to unwind any unconventional policy instruments for monetary policy purposes. Where those instruments involve unconventional interventions in specific markets or activities, with implications for credit risk or credit allocation, the Committee is expected to work with the government to ensure appropriate governance arrangements are in place. The remit cites the establishment of the Asset Purchase Facility in 2009, the Funding for Lending Scheme in 2012, and the Term Funding Schemes in 2016 and 2020 as prior cases of such coordination between the Bank of England and the Treasury. The Committee may also judge it appropriate to deploy forward guidance in order to influence expectations.

The government’s economic policy objective, as set out in the remit, is to deliver broad-based and resilient growth built on strong and secure foundations, with price and financial stability described as essential prerequisites to achieving it. The objective comprises four elements: maintaining a stable macroeconomic environment, key to which is operationally independent monetary policy; supporting investment through the effective management of public finances and sustainable taxes and borrowing while accelerating the transition to a climate-resilient, nature-positive, net zero economy; delivering supply-side reform and a targeted industrial strategy, including greater devolution of power and resources; and growing the financial services sector and increasing its international competitiveness while safeguarding financial stability and consumer protection.

On accountability, the remit states that the MPC is accountable to the government for the remit, that the Bank is accountable to Parliament through regular reports and evidence given to the Treasury Committee, and that the Bank is accountable to the public at large through the publication of the minutes of MPC meetings and the Monetary Policy Report. Healey wrote that any changes to the remit will ordinarily be set out at future fiscal events, that there is value in continuity to which he will have proper regard, and that he will always consider the case for updating the remit on its merits.

The remit also notes the overlap in membership between the MPC and the Financial Policy Committee, which exists to foster coordination between monetary and macroprudential policy. To enhance that coordination, the MPC should reflect in any statements on its decisions, the minutes of its meetings and its Monetary Policy Reports how it has had regard to the FPC’s policy actions. The government has also asked the FPC to note in the records of its meetings, its policy statements and its Financial Stability Reports how it has had regard to the MPC’s policy settings and forecasts.