by Editorial on (#2NBX4)
Two decades after Gordon Brown allowed the Bank to set interest rates, it must answer new questions about its role and responsibilitiesIt is 20 years since the Bank of England was given the right to set interest rates by Gordon Brown. In the two decades since, the power wielded by Threadneedle Street has increased as its performance has got worse. It is hard now to remember how serene life was for the Bank in the early days after it was granted operational independence. Stripped of its role as supervisor of the UK’s banks, the Bank effectively became a monetary policy institute, with the nine members of its monetary policy committee tweaking the cost of borrowing to hit the government’s inflation target. With cheap Chinese goods keeping prices low, this was not especially hard to do. Mervyn King, the Bank’s governor from 2003 to 2013, called the late 1990s and the early 2000s the Nice decade – as in non-inflationary consistent expansion – and it was an apt description.Apt, but incomplete, because while the Bank was congratulating itself on hitting the inflation target, it failed to do anything to prevent the biggest speculative bubble since the 1920s. To be fair, this was not entirely the Bank’s fault. The crisis exposed the weaknesses of Labour’s tripartite system of financial supervision, with responsibility shared between the Treasury, the Bank of England and the Financial Services Authority. But the Bank did not realise until it was far too late that crises can erupt even when inflation is low. Like other central banks, it was guilty of groupthink. Continue reading...