January 28, 2008

The Bank of England

Andrew Lillicoe is entirely right on Conservative Home to draw attention to the fact that the Chancellor needs to explain the way that the Bank of England is and should be interpreting his inflation target. One of the strengths of the model of independence used for the Bank of England is that whilst the Bank is accountable for the operation of monetary policy, the Chancellor is accountable for its ends. The Chancellor sets the rate of inflation he would like to see- and the Bank finds a way to bring that rate or an approximation to that rate into being. That system means though that the Chancellor needs to take control of the issuing of that rate: he is the democratically elected politician and no matter how technically proficient the economists are at Threadneedle Street, it is for the Chancellor not them to decide the ends of UK monetary policy. That means that the Chancellor needs to exercise that power and not be intimidated- there is a worrying trend in British public life for politicians to devolve power to experts. Its not worrying if the experts implement the instructions of the politician, it is if as it seems in this case from Mr Lillicoe's reporting, the politicians forget that they should demand answers if the experts don't produce the conclusions that they have asked for.

3 comments:

edmund said...

Indeed precislely correct- it also shows hte problem of "lending" power to quangos- even when the argument is very strong as in this case.

Bretwalda Edwin-Higham said...

The BofE is far more powerful than that at the level of its interraction with other CBs.

mutleythedog said...

Why shouldn't the inflation rate target be zero? I know I would vote for that...