... exchange rate as a means to control inflation and in 1990, the UK entered the European Exchange Rate Mechanism (ERM). Monetary policy had to be set to ensure that the pound did not strengthen or weaken by more than a certain amount against other currencies in the system. Unfortunately differences in economic conditions across Europe forced England out and they were forced to adopt a new idea. In 1992, the public's inflationary expectations changed and the rate of inflation had started to decrease more than previous levels. Instead of targeting something like the exchange rate as a means of controlling inflation, a rate for inflation itself was targeted. Interest rates were set to ensure demand in the economy was kept at a level consistent with a certain level of inflation over time. Inflation had already started to fall and when the "targeting regime introduced by Norman Lamont", it appeared a very ...

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