Leading article: The Governor of the Bank of England should know his place

The problem is not the Wikileaks revelation but how contentious a figure he has become

Share
Related Topics

The Prime Minister has been quite right to dismiss calls to remove the Governor of the Bank of England, Mervyn King, with the blunt statement that "the issue of confidence simply doesn't arise." He would also be wise, however, to give the Governor a sharp reminder of the dangers of the head of the independent central bank being seen as too political.

Not that there is anything in the Wikileaks documents made available this week that would warrant a sacking or, as some MPs are calling for, a parliamentary investigation into his remarks last February to the US ambassador. Indeed, after all the accusations of being too favourable towards the Tories, it might even be thought beneficial to Mervyn King to be publicly revealed as criticising David Cameron and his putative Chancellor, George Osborne, in the run-up to the election.

The problem, however, is not the Wikileaks revelation – if, indeed, it is much of a revelation – but the way in which it has shown just how contentious a figure the Bank Governor has become. Any central banker, "independent" or otherwise, is going to take an interest in the Government's policies towards expenditure and revenue at a time like this. It would be irresponsible if he did not.

Mr King, however, has gone much further than this. From early on he has taken an increasingly public stance in favour of sharp expenditure cuts in a manner that was bound to – and did – appear to support the Tory case on the most highly-charged issue of the election. In the immediate aftermath of that election, it was the Governor's intervention, and in particular his warning to Nick Clegg and the Liberal Democrats of the urgent need for radical cuts, that helped to swing the party into coalition government.

It is little wonder that members of the Labour Party feel so passionately about the Governor's intervention, or that the more Keynesian-inclined members of the Monetary Policy Committee (MPC) might feel that the Governor has abused his position to, as David Blanchflower, a former member of the MPC puts it, "co-author the Coalition's strategy on the deficit. That is definitely not part of his job description."

Indeed it is not. In granting the Bank of England its independence, the then Chancellor, Gordon Brown, made a very clear distinction between its responsibility to control inflation through interest rates and monetary measures and the Government's right to lay down fiscal policies to influence the economy as a whole. Deficit reduction falls in the latter sphere.

Of course the Bank has to be concerned at the market reactions to policy. As the Irish and Portuguese have found, a fall in confidence among international investors could have a disastrous impact on interest rates. But it is also the duty of the Governor to keep out of the public argument when it becomes political and to give his advice to the Chancellor of the day in private.

That early and deep cuts are necessary to ensure recovery is not an article of faith in this country. Just the opposite. Having profoundly misjudged the initial stages of the financial crisis, Mr King's understanding of market sentiment, and what it will or will not tolerate from public policy, could hardly be called infallible.

However, to drop Mr King – whose contract was renewed, most reluctantly, by Alistair Darling, until June 2013 – at this stage of general market nerves would be folly. David Cameron and his Chancellor have every reason in any case to be grateful for his support of their policies. But they would be wise to remind the Governor of the separation of functions between Bank and Treasury and to remind him that an effective central banker is of necessity a discreet one.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Recruitment Genius: Lettings and Sales Negotiator - OTE £46,000

£16000 - £46000 per annum: Recruitment Genius: This is an opportunity to join ...

Recruitment Genius: Home Care Worker - Reading and Surrounding Areas

£9 - £13 per hour: Recruitment Genius: This is a great opportunity to join a s...

Recruitment Genius: Key Sales Account Manager - OTE £35,000

£25000 - £35000 per annum: Recruitment Genius: Have you got a proven track rec...

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Day In a Page

Read Next
David Cameron visiting a primary school last year  

The only choice in schools is between the one you want and the ones you don’t

Jane Merrick
Zoë Ball says having her two children was the best thing ever to happen to her  

Start a family – you’ll never have to go out again

John Mullin
Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn