Threat to Mervyn's Kingdom; CITY COMMENT

Daily Mail (London), June 30, 2006 | Go to article overview
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Threat to Mervyn's Kingdom; CITY COMMENT


A BENEFIT of an independent Bank of England is that the governor Mervyn King can speak out without fear of being overruled by the Treasury.

But it is my understanding that the Chancellor is not best pleased by King's outburst over the choice of new members for the Monetary Policy Committee.

The governor rightly pointed out that a process shown to be highly haphazard - as illustrated by Freedom of Information Act material - could be improved.

The Treasury's irritatingly slow approach - Richard Lambert left the MPC in March - means that it is now two members short with a third commuting from the US.

King makes it clear that the current informal process is to the benefit of no one. There are a number of reasons for the Treasury's dilatory response.

The officials most associated with the creation of the MPC - Ed Balls, now Economic Secretary, and Cabinet Secretary Gus O'Donnell -are no longer taking a close personal interest in Labour's most enduring legacy.

Economists from the lucrative private sector also find a modestly paid, part-time job at the Bank of England less than enticing.

Politics plays a part. Many of those appointed over the years have been close to the new Labour project, including David Walton, who died last week, and Chris Allsopp, who received the thumbs down from the Treasury Select Committee because it doubted his independence.

There are a number of excellent economists out there who are strong critics of Labour and its management of public finances - and who instinctively know they are persona non grata because of their views.

This despite the fact that each would only be only one vote on a nine-person committee. It is no real accident that the awkward squad on the MPC, people like DeAnne Julius and Willem Buiter were each only given one term to rock the boat.

The Chancellor needs to streamline the selection process, make it more transparent and allow the TSC to have the final words on appointments. Then the Bank will be truly independent.

Ben's choice

AFTER his tough anti-inflation speech on June 5, which sent the Dow Jones index plummeting 199 points, Fed chairman Ben Bernanke had little choice but to raise American interest rates at the latest meeting.

Fed rates have climbed 17 times in a row, raising borrowing costs to 5.

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