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  • Dr Gerard Lyons

Quoted in a Daily Telegraph article on Saturday about The Bank and economic policy making

I was quoted in a very interesting piece by Russell Lynch in the Daily Telegraph.


https://www.telegraph.co.uk/business/2021/11/06/cosy-links-whitehall-bank-england-shape-britains-interest-rates/?WT.mc_id=tmgliveapp_iosshare_AyBcHJktqQZx


This is the context in which i was quoted:


The ‘cosy’ links between Whitehall and Bank of England that influence who shapes Britain’s interest rates


Questions about the tendrils of Whitehall stretching into Threadneedle Street were resurfaced this week after the Bank of England shocked financial markets by holding interest rates.


The Bank is constantly at pains to stress its operational independence. But the Government is a key beneficiary of the low rates that were maintained by Andrew Bailey and his colleagues, as almost £895bn of quantitative easing - debt bought, albeit indirectly, from the Treasury - swells its balance sheet.


Silvana Tenreyro, a member of the Monetary Policy Committee (MPC), the interest rate decision makers, was the latest to defend the Bank against the claims of monetary financing - the direct funnelling of money directly from Threadneedle to Whitehall to spend.


At an IMF event on Friday the economist insisted that in a crisis like Covid it was “natural” that both fiscal policy and monetary policy would act in tandem on the economy, while she argued the actions of the Bank had been sometimes “misunderstood or misinterpreted”.


But some critics are uncomfortable over the close links between the Bank and the Treasury - Whitehall’s most powerful department - more than two decades on from independence. As Chancellor Rishi Sunak emphasises the vulnerability of the public finances to higher interest rates, decisions over when to unwind stimulus inevitably take a political hue.


Gerard Lyons, Boris Johnson’s former economics adviser, highlights the “Whitehall, Oxbridge backgrounds” of much of the Bank’s senior leadership.


“There should be consistency between monetary and fiscal policy, but there is probably too cosy a relationship between the Treasury and the Bank of England.


“The Treasury dominates the decision making in terms of all senior positions at the Bank. That should be questioned and possibly changed. It's not clear to me whether it results in the best outcome. It should in my view also be linked to a wider review of economic policymaking in the UK and the power of the Treasury.”


Formally, the Bank has been operationally independent since Gordon Brown let a Monetary Policy Committee set rates instead of the Chancellor in 1997.


... the rest of the article followed....