Credit Crunch: Northern Rock Challenges Bank of England’s Independence
AS Anatole Kaletsky points out in the Times today there’s one thing that will disappear (if in fact it ever existed) as a result of the credit crunch and the Northern Rock goings on: the Bank of England’s independence.
It was, you may recall, almost the first thing Gordon Brown did on becoming Chancellor in 1997, making the BoE independently responsible for the setting of interest rates. They were given a target of 2% inflation and told to get on with it, as opposed to the earlier system when it was the Chancellor who actually decided the short term interest rates.
So far so very god but this independence took something of a knock when the Chancellor some years later changed the measure of inflation that that 2% target should hit. From one that included housing costs to one that did not….just as housing prices were climbing strongly and would have indicated that interest rates should rise. So, err, not all that independent then.
The current threat to such independence is that, given what has happened, perhaps the BoE shouldn’t be responsible for crisis management? If that is the case then the market dealings part would need to move to Treasury control.
But, the way that the BoE actualy controls interest rates is through those very market dealings. Meaning, in effect, that while the Bank would be responsible for interest rates, they couldn’t in fact do all that much about them.
Which leads to (and with the way that various politicians are talking about “interest rates should do this” “they should do that”) the thought that while Brown’s one and only universally agreed to be sensible act since 1997 might stay in name, the Bank of England’s independence is about to be taken away in substance.
Posted: 27th, September 2007 | In: Credit Crunch, Money Comments (4) | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink
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September 28th, 2007 at 8:39 am
What sort of interests rates will they be charging now?
September 28th, 2007 at 12:48 am
Anyone who holidays in France in August clearly does not have a clue about anything.
September 28th, 2007 at 12:00 am
The Northern Rock affair is a classic example of all involved being asleep at the switch . Is it really the case that no one thinks there can ever be a crisis in August?
The FSA Chief Executive Hector Sants was appointed FSA Chief Executive in July but instead of getting his feet under the desk immediately took the whole of August off first at a (week long!) “family funeral” and then on holiday in France and - despite his protestations to the contrary - clearly didn’t have a clue what was happening. Pressed by Jon Snow he could even give a date when the FSA first heard about the problem
Merfyn King of the Bank of England had invented - either before or after the event - his “moral hazard” argument only to have to -despite his protestations to the contrary- do a handbrake turn under pressure from Alistair Darling. “Moral Hazard” or no - his scruples apparnetly wouldn’t have prevented him bailing out Northern Rock if it could only have been done in private.
Gordon Brown and Alistair Darling - only reacted when they saw the queues mounting outside Northern Rock and suddenly realised this could lose them the election.
The Northern Rock shambles is down to all of them - what a gang of incompetents to be in charge of Britain’s banking system.
September 27th, 2007 at 7:59 pm
[...] Northern Rock and if they can check us for lying, why can’t we check [...]