BoE's Bailey rebuffs talk of less central bank independence in UK

[August 05, 2022]  By William Schomberg and William James

LONDON (Reuters) - Bank of England Governor Andrew Bailey pushed back at suggestions by the front-runner to become Britain's next prime minister Liz Truss and her supporters that the government should have a bigger role in how the central bank operates.

With inflation on course to surpass 13% later this year - its highest since 1980 - Truss has said she wants to set "a clear direction of travel" for monetary policy and has promised a review of the BoE's remit.

An ally of Truss, Attorney General Suella Braverman, has gone as far as saying that the review would question the BoE's exclusive powers to set interest rates.

Bailey responded by saying it was "critically important" that central banks maintained their independence, something the BoE had "strong views" about.
 

"I actually don't think from what I see that...there is a large desire in this country to question central bank independence," he told BBC radio in an interview broadcast on Friday, a day after the BoE raised interest rates by the most since 1995 and forecast a long recession.

"But I'm very happy to discuss with the new government, you know, the details and the nature of the regime that's in place."

The BoE was given operational independence on monetary policy in 1997, since when it has been tasked with meeting an inflation target - currently 2% - that is set by the government.

Truss has said it is time to review that mandate and she has also suggested a return to targeting money supply might be a way to control inflation.

Governor of the Bank of England, Andrew Bailey, reacts during the Bank of England's financial stability report news conference, at the Bank of England, London August 4, 2022. Yui Mok/Pool via REUTERS

With Britain set to be hit harder than in other major economies, where soaring energy prices hit consumers and businesses less directly, Bailey has faced tough criticism of the BoE by Truss and her supporters for raising rates too late.

He told the BBC he would challenge those criticisms: "There are some points that yes, I will say 'I'm sorry, I don't agree with that point.'"

Bailey also said he intended to see out his full term as governor, which is due to end in 2028.

"I made a commitment. Its an eight-year term and that's the part of the fabric of the independence of the Bank of England that doesn't change with changes of government, changes in views," he said.

Earlier on Friday, business minister Kwasi Kwarteng, who is backing Truss, made fresh criticisms of the BoE.

"If your target is 2% and you're predicting 13%, something's gone wrong. And you've got to look at how the bank is organised and what the what the targets are," he told Sky News.

Asked whether the BoE would keep its independence in a Truss-led government, Kwarteng said: "It's absolutely going to keep its independence."

(Reporting by William Schomberg, Editing by William James and Hugh Lawson)

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