The day after being appointed as the U.K.’s new Chancellor of the Exchequer (the minister responsible for economic and financial matters), Kwasi Kwarteng met with a small delegation of senior bankers that included the European chief executives of Goldman Sachs, J.P. Morgan and BlackRock.
At the meeting, which was attended by 14 executives from City firms including HSBC, NatWest and Barclays, Kwarteng emphasized that the new government would be pursuing an “unashamedly pro-growth agenda” that would involve cutting taxes and regulations while creating the right conditions for investment and innovation, the Guardian reported Wednesday (Sept. 7).
Kwarteng also used the meeting to reiterate his support for the Bank of England’s independence, per the report, but said the central bank’s mission to control inflation was critical to keeping the cost of living under control.
Inflation in the U.K. currently stands at around 10% — the worst the country has experienced in forty years, and five times the BoE’s target of 2%. Following his meeting with city leaders, Kwarteng went to discuss how best to bring inflation under control with BoE Governor Andrew Bailey.
On Wednesday morning, Bailey was in Westminster speaking to MPs on the Commons Treasury committee. Defending the BoE’s recent performance, Bailey told members of Parliament that the U.K.’s high inflation was due to external factors that were out of its control, primarily the war in Ukraine.
He said, “The person who is going to put this economy into recession is Vladimir Putin, not the MPC [Monetary Policy Committee],” adding that “by far the largest contribution to [inflation] is the war. That’s not something that is, I’m afraid, within the remit of monetary policy.”
Following the BoE’s interest rate hike last month, talking on Sky News, Kwarteng questioned the bank’s logic in taking so long to raise interest rates.
“The job of the Bank was to deal with inflation,” Kwarteng said. “They’ve got a 2% inflation target, that’s actually their mandate. And now inflation is hitting double digits. So clearly, something’s gone wrong.”
When asked if the bank would keep its independence under a Truss government, he said “absolutely,” but also hinted at a review of its mandate and organization.
“We need to look again at what the mandate is and how best they can actually fulfill that mandate […] you’ve got to look at how the Bank is organized and what the targets are,” he said.
In a note sent to clients Wednesday, analysts at Goldman Sachs said they expect a review of the BoE’s mandate this fall — a process that they said would probably come “with some potential personnel changes,” the Guardian reported.
While certain Tory MPs may be critical of Bailey’s governorship, under current legislation, he is secure in the job until 2027. That being said, the minimum term lengths for senior BoE executives could well form part of any potential review.
For his part, former Chancellor and now-defeated leadership contender Rishi Sunak has been critical of calls to curb the BoE’s independence. Speaking to reporters in August, he said, “I think that would be a mistake, and I think it would spook international investors into the United Kingdom and will be bad for all of us.”
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