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How Burnham’s team could reshape the Bank of England
Andy Burnham's political operation, spearheaded by Louise Haigh, has been drawing up plans to re-examine the Bank of England's mandate as part of preparations for a potential Burnham government. The move would mark a significant departure from three decades of Bank independence established by Gordon Brown in 1997, and signals that Burnham's team wants to show it is prepared to govern differently, particularly on economic policy.
The proposal centres on whether the Bank's remit, currently focused solely on meeting a 2% inflation target set by the chancellor, should be broadened to include better coordination with government and a greater focus on growth. Economists argue that recent "supply-side shocks" from events such as Covid, the Ukraine war and the Iran conflict have made interest rates an increasingly blunt and costly tool, with critics including thinktank New Economics Foundation warning the current framework risks a "doom loop" of high rates choking growth without effectively tackling shock-driven inflation.
In short
- Burnham's team, led by Louise Haigh, may reconsider the Bank of England's mandate.
- It would challenge 30 years of Bank independence dating to 1997.
- Experts argue rate-only policy struggles with modern supply-side inflation shocks.
Steelman: both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
The current framework's narrow focus on inflation targeting has become inadequate for modern economies facing supply-side shocks that monetary policy cannot address directly. When inflation stems from geopolitical events like war or pandemic disruption rather than excess demand, interest rate hikes simply choke growth without solving the underlying problem, creating an unnecessary doom loop. Broadening the Bank's mandate to include growth coordination and closer government alignment would allow more nuanced policymaking that accounts for these complex realities whilst maintaining the institutional independence that provides credibility. The 1997 settlement was right for its time, but nearly three decades of economic evolution warrants a thoughtful reconsideration of what an effective monetary framework should entail.
The case against
The Bank of England's independence and narrowly defined inflation mandate have been the foundation of monetary credibility for three decades, successfully anchoring inflation expectations and providing clear accountability. Broadening the mandate to include growth and closer government coordination risks politicising monetary policy, as politicians would inevitably pressure the Bank to prioritise growth over inflation control when the two conflict. Supply-side shocks require fiscal policy responses—spending, investment, supply measures—rather than changes to the monetary framework; restructuring the Bank's remit conflates two distinct policy domains. The current framework's constraint, whilst sometimes painful, provides the discipline necessary to maintain independence and effectiveness; weakening it in pursuit of short-term flexibility could undermine the very credibility that makes the Bank's policies work.
Explained simply
The Bank of England sets interest rates and manages the nation's money supply. For the past three decades, it has been independent from government with one main goal: keeping inflation—the rate at which prices rise—at 2%.
Andy Burnham, a potential future prime minister, is considering plans that would give the Bank wider responsibilities, possibly including work with government on promoting economic growth alongside controlling inflation. This would end the independence that has been in place since 1997, designed to prevent politicians from using the Bank for short-term political gain.
Recent world events like the Covid pandemic, the Ukraine war and Middle East conflicts have created economic problems that some economists argue cannot be solved by raising interest rates alone. They worry that focusing exclusively on inflation control could force rates up to the point where they stifle growth without actually fixing the underlying causes of price increases.
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