Bank of England Given Independence
City, London The 6th of May 1997 AD
It was the first huge rabbit pulled out of the hat by Gordon Brown – politicians love master-strokes - the newly appointed Chancellor of the Exchequer in Tony Blair’s first cabinet : the Bank of England would be able to set interest rates independent of the government of the day.
Independence up to a point, however, given the inflation target which the Bank’s interest rates would need to help meet were set by the Treasury; and that the members of the monetary policy committee who were not bank employees would be appointed by the government.
Former Chancellor Norman Lamont praised the move; the Liberal Democrats pointed out that it had been their policy since 1992; and Nicholas Budgen the by then Conservative ex-MP who had proposed the idea without support from Labour in Parliament in 1996 was left wondering where the change of heart came from.
Many commentators welcomed removing the temptation for Chancellors to stir pre-election booms by dropping interest rates artificially; Gordon Brown indeed boasted at his press conference announcing the move that he wanted to end boom and bust economics, a laudable goal. Sadly, though for a decade the move seemed to have worked, life and markets are more complicated than that.
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