Bank of England: The War of Independence16 Aug 2022 12:56
Pressure is building on the Bank, and one prime ministerial candidate is agitating for change.
It’s been a summer of excessively high temperatures in the UK but Andrew Bailey will be feeling the heat more than most.
With inflation soaring and on the verge of breaking through 10%, the Bank of England governor is under intense pressure from all sides. But the biggest of these threats arguably comes from the next prime minister.
The likely winner of the race to be Conservative party leader, Liz Truss, has signalled her intention to look again at the Bank of England’s (BoE) mandate. Plans are vague, and there’s an element of candidates testing the water among the party faithful. But the BoE’s independence, for years seen as unassailable, is now considered "up for discussion" among the country’s rulers.
Starting with the basics, central bank independence is generally agreed to be a good thing. Otherwise politicians could tweak the monetary taps in their favour whenever an election is due, ensuring cheap money for voters to load up on cars, holidays and houses. The "feelgood factor" is important in economics and politics, so it’s sensible to keep the cookie jar at one remove.
BoE governors also tend to have longer tenures than their political colleagues. Mark Carney worked with three prime ministers during his tenure, while Andrew Bailey is about to work with his second. The world’s major central banks run on similar lines, from the Federal Reserve to the European Central Bank (ECB).
But central bankers’ independence can’t be taken for granted. President Trump wanted Fed chair Jerome Powell sacked for not cutting interest rates steeply enough in 2019, using Twitter as a platform for this (ultimately unsuccessful campaign). And there’s some overlap between politics and economics even in the Eurozone: countries joining the single currency bloc are ceding control to the ECB and accepting some political uniformity.
https://www.morningstar.co.uk/uk/news/225862/bank-of-england-the-war-of-independence.aspx?
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