Written by: George Prior
Liz Truss, the frontrunner to become the next UK Prime Minister, hints that the Bank of England’s independence is under threat will spook markets, warns the CEO of one of the world’s leading financial advisory organizations.
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 favorite.
The deVere boss says: “Liz Truss, who is the likely successor to Prime Minister Boris Johnson, has criticized 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 politicization of the UK’s central bank is likely to create considerable uncertainty which will spook financial markets.
“This is the last thing anyone needs, especially after the BoE has 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.”
He continues: “It is widely acknowledged amongst 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 outspoken CEO has not always been a fan of the Bank of England himself. He publicly slammed the central bank recently 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 politicizing 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 notes.
“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.”
Nigel Green concludes: “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.”