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Michael Saunders, one of nine members of the interest
rate-setting Monetary Policy Committee, said the foundations of
Britain's monetary policy framework were best left untouched by
candidates to lead the Conservative Party.
Foreign Secretary Liz Truss, one of the front-runners to succeed
Boris Johnson, at the weekend said she would "set a clear
direction of travel" on monetary policy.
"The government very clearly does not set the direction of
travel for monetary policy. That's set by the independent MPC in
order to achieve the 2% inflation target...and that's
fundamental to the UK's framework," Saunders told the audience
at a Resolution Foundation event in London.
"There's a debate always about will interest rates go up or
down. But the foundations of the UK monetary policy framework, I
think, are really important and best left untouched."
Saunders said Britain's monetary policy credibility was at
stake.
"The MPC's ability to loosen monetary policy promptly and
effectively during the recession of 2008-09 and during the
pandemic... rests on the credibility of that policy framework."
Without that credibility, the BoE's attempts to stimulate the
economy would have been less effective, Saunders said in a
question-and-answer session after a speech in which he said
interest rates could top 2% in a year.
It is rare for rate-setters to criticise politicians although in
2016, then-governor Mark Carney said he would not "take
instruction" from politicians after the prime minister at the
time, Theresa May, said the BoE's policies had "bad
side-effects" and would have to change.
(Reporting by David Milliken; Writing Andy Bruce; Editing by
William Schomberg)
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