Treasury steps in to settle Bank of England interest rate squabble

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The Independent Online

The treasury yesterday warned the Bank of England it must bring to a swift end a potentially damaging rift between members of its Monetary Policy Committee. The row between the independent MPC members and the Bank's executives has blown into the open days before their next vote on interest rates.

The treasury yesterday warned the Bank of England it must bring to a swift end a potentially damaging rift between members of its Monetary Policy Committee. The row between the independent MPC members and the Bank's executives has blown into the open days before their next vote on interest rates.

The Bank's governing body been called in resolve the dispute, which analysts said could harm the financial markets' respect for the MPC. The Chancellor is anxious not be seen to interfere with the independence of the MPC but it is understood the Treasury has made it clear the Bank must sort internal problems swiftly.

The independent members - Willem Buiter, Charles Goodhart, DeAnne Julius, and Sushil Wadhwani - have complained about a lack of access to the Bank's overworked economists. Sources said the issue was first raised by Mr Wadhwani, the newest member of the MPC, and ended in a "blistering row" with the deputy governor, Mervyn King.

Mr Wadhwani complained after requests for a series of pieces of research were rejected by Mr King. The men also hold different economic views. Mr King is known as a "hawk" and Mr Wadhwani is a leading "dove".The issue has been passed to the Court of the Bank of England, which includes a sub-committee of 16 independent non-executive directors of the Bank which oversees the MPC operation.

Giles Radice, the Labour MP and chairman of the influential Commons Treasury Committee, said he would grill the MPC members when they appeared before him next month. "I will want to know whether this is true and then, since we will have Sushil Wadhwani and Mervyn King before us, I will want to get to the bottom of this," he said.

Mr Radice said he would also summon members of the Court before the committee if he felt they were not exercising their duties of monitoring the MPC and reviewing the Bank's financial management.

The Bank has had difficulty recruiting qualified economists. The staff in the Monetary Analysis unit was budgeted to increase by 20 to 136 but only 13 were recruited. This year it aims to hire a further 20.

The Bank is finding it hard to compete with salaries offered by City banks. A spokeswoman said: "It is inevitable there will be disagreements from time to time over the allocation of collective resources but there are procedures for resolving these differences of view."

The monetary policy side of the Bank is fighting for a greater share of resources. As a result the MPC is moving from the first to the third floor of the Bank to get more office space.

Stephen Lewis, chief economist at Monument Derivatives, said it had been a mistake to fill the independent positions with professional economists.

He added: "Anyone who knows anything about economists knows when inevitably they find themselves at loggerheads, their quarrels often become abusive." At the last MPC meeting they voted unanimously to keep rates on hold at 5.25 per cent. This time economists are less sure. A poll of 33 found 25 forecasting a hike, a majority of three to one.

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