LONDON, Aug 4 — The review of the Bank of England promised by British leadership frontrunner Liz Truss will ask questions over its independent decision-making on interest rates, one of her top supporters said today.
The BoE this year marks 25 years of operational independence from the government over the setting of monetary policy.
But with inflation heading towards double digits, its performance has been attacked by Conservative politicians who are themselves under pressure to help households facing soaring energy bills.
Foreign Secretary Truss has said she plans to hold a review of the BoE’s mandate, but has not set out exactly what that would cover.
Today, Attorney General Suella Braverman, who is backing Truss to win the Conservative leadership race, said the review would consider the central bank’s independence.
“That’s going to be looking into detail at exactly what the Bank of England does, and see whether it’s fit for purpose in terms of its entire exclusionary independence over interest rates,” Braverman told Sky News.
“The last time this was done was in 1997 — it’s right and it’s ripe now to review whether that is the right settlement.” Braverman said they did not plan to revoke the BoE’s independence.
“But there are many other models around the world where central banks have different degrees of independence over monetary policy,” she said.
Two opinion polls this week showed Truss had extended her lead over former finance in the race to be Britain’s next prime minister.
Marc Ostwald, chief economist from brokerage ADM Investor Services International, said investors might find Braverman’s comments unsettling.
“Any idea of interference — then people will have to think about what sort of premium will have to be factored into UK rates, and the risk factor for the pound.” he said.
Truss has previously cited Japan — which adopted radically loose monetary policies in a desperate effort to break out of deflation — as a country the Britain could learn from because it has relatively low inflation now.
Last month Michael Saunders, one of the BoE’s interest rate setters, said Britain’s monetary framework was best left untouched and that the country’s policymaking credibility was at stake.
The BoE is set to raise interest rates on Thursday to a new a post-financial crisis high of 1.75 per cent, according to a majority of economists polled by Reuters. — Reuters
