A senior policymaker at the Bank of England has indicated a readiness on its part to resume its programme of "quantitative easing", which saw £200bn directly injected into the British economy in an attempt to boost growth and return inflation to its 2 per cent target.
Adam Posen, an external appointee and the most recent addition to the Monetary Policy Committee, said the Bank should not fear claims that it would be compromising its independence. "The substance of central bank independence is giving monetary policy setting committees the legal autonomy to refuse demands to purchase debt instruments," he added.
"The counter-inflationary credibility of central banks is not fragile to voluntary purchases of bonds, public or private, made with reference to clear economic (as opposed to political) justification."
Recent weakness in the economy has raised the possibility of a resumption of QE, which has never been ruled out by the Bank, notwithstanding the rise in the headline consumer price index data as commodity prices have risen and the pound declined. Today's Consumer Prices Index is expected to show continuing high inflation, though it is forecast to fall by January.
Mr Posen added: "Deeds matter, not institutional appearances. Central bank independence is about the ability to say no to demands for bond purchases when they are economically unjustified, no more, no less. Central banks maintain that ability to say no by delivering best possible economic results, not by minding their reputation for seeming independent."
"Getting unduly caught up in protecting the appearance of central bank independence is doubly mistaken: first, it will not do any good because it is not that appearance which delivers desirable results; second, it will prevent pursuing the right policy option."Reuse content