LONDON (Reuters) – A top Bank of England official pushed back at suggestions from a leading candidate to become Britain’s prime next minister that the government should set a “clear direction of travel” for monetary policy.
Michael Saunders, one of nine members of the interest rate-setting Monetary Policy Committee, said the foundations of Britain’s monetary policy framework were best left untouched by candidates to lead the Conservative Party.
Foreign Secretary Liz Truss, one of the front-runners to succeed Boris Johnson, at the weekend said she would “set a clear direction of travel” on monetary policy.
“The government very clearly does not set the direction of travel for monetary policy. That’s set by the independent MPC in order to achieve the 2% inflation target…and that’s fundamental to the UK’s framework,” Saunders told the audience at a Resolution Foundation event in London.
“There’s a debate always about will interest rates go up or down. But the foundations of the UK monetary policy framework, I think, are really important and best left untouched.”
Saunders said Britain’s monetary policy credibility was at stake.
“The MPC’s ability to loosen monetary policy promptly and effectively during the recession of 2008-09 and during the pandemic… rests on the credibility of that policy framework.”
Without that credibility, the BoE’s attempts to stimulate the economy would have been less effective, Saunders said in a question-and-answer session after a speech in which he said interest rates could top 2% in a year.
It is rare for rate-setters to criticise politicians although in 2016, then-governor Mark Carney said he would not “take instruction” from politicians after the prime minister at the time, Theresa May, said the BoE’s policies had “bad side-effects” and would have to change.
(Reporting by David Milliken; Writing Andy Bruce; Editing by William Schomberg)
