Bank of England defends independence as politicians surround
Top brass at the Bank of England defended their record on Britain’s monetary policy on Thursday, after a cabinet minister spoke openly about diluting the central bank’s operational independence.
Speaking shortly after the BoE raised interest rates from 1.25% to 1.75%, BoE Governor Andrew Bailey said it was important for the central bank to take policy decisions independent of government. With inflation nearing double digits, conservative politicians have attacked the BoE’s performance as they come under pressure to help households facing skyrocketing energy bills.
Foreign Secretary Liz Truss, favorite to succeed Boris Johnson as prime minister, said she planned to review the BoE’s mandate, but did not say exactly what that would cover. Bailey said it’s important to understand how the regime was built in 1997, adding that it has served very well since then. He would not comment on the Conservative Party leadership race.
Attorney General Suella Braverman – a key Truss ally – said the BoE was too slow to raise interest rates in the face of rising inflation. The BoE now expects inflation to peak at over 13%, more than six times its target. Braverman said the review promised by Truss would challenge his independent decision-making on interest rates.
“It’s going to take a detailed look at exactly what the Bank of England is doing and see if it’s fit for purpose in terms of all of its exclusionary independence on interest rates,” Braverman told Sky News on Thursday. “The last time this was done was in 1997 – it’s fair and now is the time to consider whether it’s the right settlement.”
Braverman said they weren’t talking about revoking the BoE’s independence. “But there are many other models around the world where central banks have varying degrees of monetary policy independence,” she said.
BoE Deputy Governor Ben Broadbent dismissed claims that central bank inaction last year contributed to higher inflation, and said it was impossible to predict the future. impact of the Russian invasion of Ukraine. Had the BoE been able to predict the invasion, Broadbent said interest rates would now be well into double digits.
“We would have had a much bigger recession, even than what we are now predicting,” he said. Marc Ostwald, chief economist at brokerage firm ADM Investor Services International, said investors may find Braverman’s comments troubling.
“Any idea of interference – then people will have to think about what kind of premium should be factored into UK rates and what risk factor for the pound,” he said. Truss has previously cited Japan – which has adopted radically loose monetary policies in a desperate effort to get out of deflation – as a country that Britain could learn from as its inflation is currently relatively low.
(This story has not been edited by the Devdiscourse team and is auto-generated from a syndicated feed.)