The Bank has now said it will review how it forecasts inflation and how it runs its models and makes its decisions on rates 🖋️ johnredwood for ipaperviews
The debate over
and high inflation is made difficult by the general view that the Bank of England is independent. This discourages politicians and media from debating their actions and thoughts, and impedes government action.following consideration by its Monetary Policy Committee. It is set a target of getting inflation to around 2 per a year, a target last revised by Gordon Brown, who changed it. I am not proposing the Bank should lose that power. Otherwise it is too deeply involved with the government.
The Bank is 100 per cent owned by the state. The government of the day chooses the governor. The governor reports to the Treasury Committee of both Houses of Parliament, where he or she is subject to scrutiny over the work of the Bank. The government bails it out if it loses too much. The main agent of monetary policy since 2008 has been the Bank greatly increasing its balance sheet then contracting it. As it expands, it buys bonds at ever higher prices, driving interest rates down. As it contracts, it sells bonds at losses, driving rates higher., along with the rate rise at the time, pushed bond prices down. This was compounded by the difficulties of LDI funds owned by pension funds having to sell to cover the calls as the market fell.
This policy is a dual control policy. The Chancellor signs off on the bond programmes. The Treasury provides a full guarantee to the Bank against losses on the bonds. The Bank says it acts as an agent of the Treasury when doing this.
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