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

IT Infrastructure Project Manager

£40000 per annum: Ashdown Group: A large and well established business is look...

Business Analyst - Banking - London - £550 - £650

£550 - £650 per day: Orgtel: Business Analyst - Traded Credit Risk - Investmen...

Data Insight Manager - Marketing

£32000 - £35000 Per Annum: Clearwater People Solutions Ltd: Our client based o...

Data Centre Engineer - Linux, Redhat, Solaris, SAN, Puppet

£55000 per annum: Harrington Starr: A financial software vendor at the forefro...

Day In a Page

Read Next
 

Letters: The West flounders in the Middle East morass

Independent Voices
David Tennant as Hamlet  

To vote no or not to vote no, that is the question... Although do celebrities really have the answer?

David Lister
All this talk of an ‘apocalyptic’ threat is simply childish

Robert Fisk: All this talk of an ‘apocalyptic’ threat is simply childish

Chuck Hagel and Martin Dempsey were pure Hollywood. They only needed Tom Cruise
Mafia Dons: is the Camorra in control of the Granite City?

Mafia Dons: is the Camorra in control of the Granite City?

So claims an EU report which points to the Italian Mob’s alleged grip on everything from public works to property
Emmys look set to overhaul the Oscars as Hollywood’s prize draw

Emmys look set to overhaul the Oscars as Hollywood’s prize draw

Once the poor relation, the awards show now has the top stars and boasts the best drama
French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

The ugly causeway is being dismantled, an elegant connection erected in its place. So everyone’s happy, right?
Radio 1 to hire 'YouTube-famous' vloggers to broadcast online

Radio 1’s new top ten

The ‘vloggers’ signed up to find twentysomething audience
David Abraham: Big ideas for the small screen

David Abraham: Big ideas for the small screen

A blistering attack on US influence on British television has lifted the savvy head of Channel 4 out of the shadows
Air strikes? Talk of God? Obama is following the jihadists’ script

Air strikes? Talk of God? Obama is following the jihadists’ script

The President came the nearest he has come yet to rivalling George W Bush’s gormless reaction to 9/11 , says Robert Fisk
Ebola outbreak: Billy Graham’s son declares righteous war on the virus

Billy Graham’s son declares righteous war on Ebola

A Christian charity’s efforts to save missionaries trapped in Africa by the crisis have been justifiably praised. But doubts remain about its evangelical motives
Jeremy Clarkson 'does not see a problem' with his racist language on Top Gear, says BBC

Not even Jeremy Clarkson is bigger than the BBC, says TV boss

Corporation’s head of television confirms ‘Top Gear’ host was warned about racist language
Nick Clegg the movie: Channel 4 to air Coalition drama showing Lib Dem leader's rise

Nick Clegg the movie

Channel 4 to air Coalition drama showing Lib Dem leader's rise
Philip Larkin: Misogynist, racist, miserable? Or caring, playful man who lived for others?

Philip Larkin: What will survive of him?

Larkin's reputation has taken a knocking. But a new book by James Booth argues that the poet was affectionate, witty, entertaining and kind, as hitherto unseen letters, sketches and 'selfies' reveal
Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?

Waxing lyrical

Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?
Texas forensic astronomer finally pinpoints the exact birth of impressionism

Revealed (to the minute)

The precise time when impressionism was born
From slow-roasted to sugar-cured: how to make the most of the British tomato season

Make the most of British tomatoes

The British crop is at its tastiest and most abundant. Sudi Pigott shares her favourite recipes
10 best men's skincare products

Face it: 10 best men's skincare products

Oscar Quine cleanses, tones and moisturises to find skin-savers blokes will be proud to display on the bathroom shelf