FROM this week The Times is running a fortnightly series of economic briefings. These coincide with Target 2 Point 5, the Bank of England competition for schools run in conjunction with The Times. Today, we examine the role of the Bank’s Monetary Policy Committee.

What is the Monetary Policy Committee? What does it do?

The Bank of England’s Monetary Policy Committee (MPC) was created by Gordon Brown soon after Labour took office in 1997. It is charged with setting interest rates, which determine both the cost of borrowing and the return on savings in Britain.

The creation of the MPC represented a fundamental shift in UK monetary policy. Before 1997 interest rates in the UK were set by the Government, meaning that political considerations could influence the interest rate decision. Now interest rates are set on purely economic grounds.

At the moment the MPC is charged with setting rates to keep the underlying inflation target at 2.5 per cent. The target is due to change later this year to a European measure of inflation, a subject to which The Times will return in future economic briefings.

The process by which changes in interest rates affect inflation is complex and is another subject to which these briefings will return.

How do you get to sit on the MPC?

All members of the MPC must have proven expertise in economics and the Committee is drawn from both inside and outside the Bank of England. There are nine members of the MPC — five from the Bank (the so-called “internals), and four externals. The four externals are appointed to the Committee by the Chancellor.

The five internals on the MPC are the Bank’s Governor (Mervyn King), its two Deputy Governors (Rachel Lomax and Sir Andrew Large), the Bank’s chief economist (Charlie Bean) and the head of its markets division (Paul Tucker). The four externals are currently Kate Barker, Marian Bell, Richard Lambert and Steve Nickell. External members are appointed to the MPC for three years, although the Chancellor may choose to renew their terms.

All new members of the MPC attend confirmation hearings at Parliament held by the Commons Treasury Select Committee. The MPs on the select committee examine the economics expertise of the MPC members and publish their findings.

However, the Treasury Select Committee has no power of veto over appointments to the MPC.