ABSTRACT
Between 1987 and 1992, the United Kingdom government sought to bring price stability by targeting the exchange rate. The period saw considerable price volatility, with inflation ranging between 3 and 11 per cent. And in 1992 the pound was forced out of the Exchange Rate Mechanism. But the problem of macroeconomic instability in the decades before 1997 cannot be attributed to monetary policy errors alone. This chapter focuses on how stability, the most important objective of all, is facing unprecedented global challenges. It also focuses on how policy should respond to these - across the financial, monetary and fiscal policy frameworks. A greater flow of information makes it easier to understand how flexibility is being applied. Financial stability and strong banks are an essential precondition to re-stimulating lending and an eventual recovery in the wider economy. And just as one led the way on global recapitalisation, one must lead the way when it comes to the wider global economy.
