RUTH SUNDERLAND: Andrew Bailey could be at the Bank of England until 2028 and to his detractors that will seem like a very long time
- Bailey, leaning from indifference to alarm, keeps an eye on her back
- The bank has been independent since 1997, but this has recently been called into question
- Its success largely depends on the quality of the manager
- The problem with the regime is that governors are appointed for eight years
Andrew Bailey, the embattled governor of the Bank of England, faces another tough week. Inflation and employment numbers will continue to paint an alarming picture of rising prices and labor shortages.
Its defenders point to similar economic problems in other developed countries, where central bankers have been slower to act.
But Bailey, with his tricks from the carefree to the disturbing, pinned the apple to his back. So much so that Liz Truss is talking of a review of the Bank of England’s powers when, as looks increasingly likely, she grabs the keys to No.10.
In the line of fire: Andrew Bailey, with his swings from wariness to anxiety, put a bullseye on his back
Bailey indicated that he is open to the idea of revising the mandate, which was supposed to ensure low inflation since the 1990s. After decades of doing just that, the Bank’s recent performance has been appalling.
The Trust may consider changing the inflation target or incorporating other measures, perhaps related to nominal GDP or employment.
One positive step would be more outside members of the Monetary Policy Committee, which sets interest rates, to reduce the risk of groupthink.
The bank has been independent since 1997, but this has recently been called into question. Central bank independence is an excellent principle. This prevents cynical politicians from manipulating interest rates for their electoral purposes at the expense of the public.
But its success depends very much on the quality of the manager. If there’s a fool on Threadneedle Street, the country is in serious trouble, not least because it’s so hard to get rid of him. The Trust may consider the term of office of the Governor and the circumstances under which he or she may be removed.
The open demands for Governor Bailey are on edge: the removal of a central bank governor in a democratic, developed country should not be taken lightly.
If Bailey were to be removed at the behest of politicians — some of whom probably couldn’t name the members of the Monetary Policy Committee, let alone direct monetary policy — it would send jitters through the markets. It would also be difficult to hire a world-class replacement.
The problem with the regime is that governors are appointed for eight years.
During this time, they do not need re-approval from the government. In other words, it is very difficult to defenestrate them.
The banking court and chancellor can theoretically remove an executive if he or she has gone off the rails for months, is bankrupt or unfit for duty, say because of habitual drunkenness.
The idea is to prevent being kicked out of Threadneedle Street simply because the government doesn’t like what the central banker says or does. The eight-year term was introduced a decade ago. The idea is that there is enough time for the governor to make informed, independent decisions, but not so much that he or she is delayed beyond their sale date.
But eight years of virtually unassailable power is a lot more than most prime ministers and chief executives could hope to enjoy – or possibly endure.
The fact that there is no formal mechanism for removing a governor before the end of his term does not mean that it cannot be done.
Pressure may be behind the scenes and a “resignation” may be in the works.
However, an equally tough governor could dig in their heels and believe they can survive their political executioners who are at the mercy of the voters.
Bailey, who is only two years old, has said he intends to serve out his term, which he sees as part of the Bank’s independence.
It’s entirely possible that he’ll take up residence in the Old Lady by 2028, which will seem like a very long time to his detractors.
RUTH SUNDERLAND: Andrew Bailey under pressure at the Bank of England
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