Healey keeps Bank of England’s 2% inflation target and flags energy price pressure

Chancellor John Healey re-confirmed the Bank of England’s inflation target at 2% on Wednesday, measured by the 12-month rise in the Consumer Prices Index (CPI), in his remit letter to the Monetary Policy Committee.

The letter to governor Andrew Bailey says the target is symmetric and applies at all times.

The letter says higher energy prices resulting from the conflict in the Middle East are “putting upwards pressure on inflation”.

The 2025 letter, issued on 26 November 2025, instead stressed that inflation had fallen from a peak of 11.1% in October 2022.

The new letter says monetary policy remains vital in supporting households and businesses by ensuring inflation returns to target sustainably in the medium term.

The opening line says economic growth and raising living standards are at the heart of the government. Last year’s letter called growth “the central mission” of the government.

The 2026 letter says the government wants to deliver “broad-based and resilient growth”, with price and financial stability as essential pre-requisites for that objective.

It adds that the government “respects and fully supports the operational independence of the MPC”, repeating wording used in the 2025 letter.

Healey also confirmed that the Asset Purchase Facility will stay in place for the 2027-28 financial year and for as long as needed.

He said this is consistent with the multiyear strategy the MPC set out on 17 September 2026. The 2025 letter made the same commitment for 2026-27.

The letter says that if inflation moves more than 1 percentage point from target in either direction, the Chancellor expects an open letter from the Governor.

That means CPI above 3% or below 1% would trigger an explanation of why inflation has moved, the policy response and the time expected to return to target.

The letter also says any changes to the remit will ordinarily be set out in future fiscal events.

The Bank of England has described the remit in a Bank Insights article as “a flexible inflation targeting mandate”.

It said the remit makes clear that low and stable inflation is the best contribution monetary policy can make in the medium to long run. It also says attempts to hold inflation at target after shocks can cause volatility in output.

Where inflation is close to target and shocks are small, the Bank said, the remit can be read as allowing almost complete discretion. Larger shocks bring the open-letter process.

On energy, the Bank wrote that there is nothing monetary policy can do to prevent higher energy prices from affecting households and businesses. Its task, it said, is to ensure inflation returns sustainably to target while balancing inflation against activity.

The Bank of England Act 1998 requires the Treasury, at least once in every 12-month period beginning on 1 June, to specify how price stability is defined and what the government’s economic policy is, according to the Treasury’s publication page.

Healey copied the letter to the chairs of the Treasury Committee and the Economic Affairs Committee.