Barely two weeks ago, the Bank of England was hailed as the undeclared savior of the UK economy. After the infamous small budget of Liz Truss and Kwasi Kwarteng, we were all expected to be grateful that the “adults in the room” were willing to clean up the mess. With the pound dropping and bond markets tumbling, it looked like UK pension funds were on the verge of collapse, until the Bank of England stepped in, restoring some calm. Or so it seemed.
Now, the pound has fallen again. Bond markets are raging. Pension funds are once again on the brink. trigger this time? The words are none other than Andrew Bailey, Governor of the Bank of England.
How did we get here then? Two weeks ago, to stem the collapse of Britain’s pension funds, the bank announced an emergency bond-buying programme, potentially worth up to £65 billion. The plan was due to expire next Friday, but few think it will actually end. Not least, bank officials were privately telling pension funds that it was likely to be extended.
So the markets were somewhat surprised last night when Bailey announced that the plan would come to an abrupt end. Speaking at an event in Washington, D.C., he announced: “We will be out by the end of this week. My message to [pension] The money is that you have three days left. The message couldn’t be more clear. It was like throwing a bomb on the trading floor.
It wasn’t the announcement itself that surprised the markets. According to an analyst quoted in financial timesthe ‘strict style’ of Bailey’s statement, delivered ‘without a clear explanation… why [the bank] He believes this is possible,” it was also a huge shock. This then prompted investors to sell more bonds, which in turn increased the cost of government borrowing.
The chaos caused by Pelly’s intervention belies the idea that technocrats are always the best. Economic decisions are best left to unelected experts. That officials make the best choices without politics breathing in their necks.
Bailey, after all, is the typical technocrat. He was considered a ‘safe person’ and a ‘competent inside expert’ when he was appointed governor of the bank at the end of 2019. Bailey was a conservative, he said. Fwhich would bring “continuity amidst turmoil elsewhere”.
Bailey had only had a few months in the business when Covid hit. He was soon seen as one of the “adults in the room,” one of the “unknown officials” who drove the economy through the shutdown. Even just a few weeks ago, Bailey and his bank were described as the heroes of the day – correcting the mistakes of a wayward prime minister and her adviser.
This version of events ignores Billy’s many flaws—and his many missteps as conservative. Just last year, when inflation soared to four percent, Bailey dismissed fears of a crisis, saying any inflation would be “temporary” (it has since exceeded 10 percent). In February, Bailey called on workers to show “restraint” in demanding wage increases (even though he was earning £575,000 a year).
The real problem here is not with Billy himself. That is, Bailey and his bank are not democratically accountable. This is despite the fact that the Bank of England is making very important decisions. It has the potential to transform the economic fortunes of millions of borrowers, savers, and businesses. Most importantly, the Bank of England does Politician Decisions, as there are always different trade-offs and competing interests at stake. These are not just numbers in a spreadsheet.
In this age of economic turmoil, we can no longer continue to trust “adults” to do the right thing. We need to return the Bank of England to democratic control.
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