|Consumer Price Index (CPI)
||An index used to measure inflation, which is the rate of change of prices for a basket of goods and services. The contents of the basket are meant to be representative of products we typically spend our money on. The UK's CPI does not include mortgage payments, house depreciation and council taxes.
||In the context of economics, this term refers to attitudes towards interest rates. 'Doves' believe that lower interest rates would benefit the economy by encouraging economic growth.
|Exchange Rate Mechanism
||A system introduced to reduce exchange rate variability in Europe, prior to the introduction of the Euro in 1999. ERM member currencies were fixed against each other within a narrow band of fluctuation, but could float against non-member countries. The UK entered the ERM in October 1990 but was forced to exit two years later due to major pressure from currency speculators.
||Government policy on taxation, spending and borrowing.
||In the context of economics, this term refers to attitudes toward interest rates. 'Hawks' believe that high interest rates would benefit the economy by keeping inflation down.
||The rate of increase in the cost of living. Inflation is usually quoted as an annual percentage, comparing the average price this month with the same month a year earlier. There are two inflation indices in the UK – the Retail Prices Index (RPI) and the Consumer Prices Index (CPI).
||A central bank's regulation of money in circulation and interest rates.
||When central banks lower interest rates or buy securities on the open market to increase the money in circulation. Also referred to as monetary easing.
|Retail Prices Index (RPI)
||An inflation index that measures the rate of change of prices for a basket of goods and services in the UK, including mortgage payments, house depreciation and council tax.