Suggestions by Liz Truss that the Bank of England’s independence is under threat, will spook markets, warns the CEO of a leading financial advisory and fintech.
The warning from Nigel Green, chief executive and founder of deVere Group, comes as Bank of England governor, Andrew Bailey, said he would be “open to a review” of its mandate after harsh criticism from the Conservative leadership favourite.
The deVere boss said Truss, who is the favourite to succeed Prime Minister Boris Johnson, “has criticised the Bank of England for not having raised interest rates faster last year, and has suggested reviewing the Bank’s mandate.
“We expect a coming War of Independence over the Bank of England. This potential tussle and the politicisation of the UK’s central bank is likely to create considerable uncertainty which will spook financial markets,” warned Green.
“This is the last thing anyone needs, especially after the BoE recently flagged-up the likelihood that a full-on, deep and long recession is on its way at the same time the UK is experiencing a 42-year high rate of inflation. This means stagflation – a worst of both worlds’ scenario – is drawing near.”
Independence controlled inflation
Greene explained that it is widely acknowledged among economists that central bank independence is one of the reasons why inflation fell over the decades.
“With the fall in inflation came more stable economic growth, and lower interest rates.”
The deVere CEO, a critic of the Bank of England, recently slammed the central bank as being ‘complacent’, ‘incompetent’ and ‘woeful’, following policymakers’ failure to move more swiftly to combat inflation.
“Whilst I share Ms Truss’s concerns over how the Bank has handled – or not – soaring prices, the politicising of it is not the answer.
“Politicians cannot be trusted not to try to engineer booms ahead of elections, that tend to be followed by busts,” he noted.
“There should be a public review – there hasn’t been one into the central bank of the world’s fifth largest economy since 1987 – but it should focus on how it can meet the needs of real people and businesses across Britain.”
Green concluded that taking back control sadly doesn’t always mean making the right decisions.
“We can expect the pound and the gilt market to react badly to any sense of growing political interference.”