2010 A Year of Economics: the Bank of England

To deal with the effects of a negative output gap the twin pedals of fiscal and monetary policy were pressed to throttle speed.

Interest rates remained at an all-time low at 0.5% to encourage borrowing.  Quantitative easing injected £200bn into the econonmy, with effects on inflation yet to be fully seen.  Currently, inflation according to the CPI index lies at 3.1%.

Inflation levels hit the headlines as it exceeded 3%, forcing Mervyn King to write a letter to the Chancellor explaining the situation.

There were even question marks raised about the credibility of the Bank of England.  Although dismissed by the Bank of England, many asked whether the bank had virtually abanoned its 2pc target.  There were also accusations that Mervyn King had become "too political" by endorsing the coalition's spending cut plans.