Commentary: Going for broke at the Bank

The Prime Minister's choice of the next Governor of the Bank of England should, on past performance, have been announced just before Christmas. Downing Street is running late, and a decision is likely in weeks rather than days. In many ways, the later the better. A long delay could be a sign that the suc

cessful candidate is locked in negotiation with the Government about the remit. There will never be a better chance to influence the terms of employment.

The Government is against making the Bank formally independent (although it must do so, under the Maastricht treaty, if it decides to opt into a single European currency). But it has committed itself to more openness in policy-making, and has asked the Bank to assess every three months the Government's progress towards its 2 per cent inflation target.

It would be a useful innovation to publish the sort of exchange of letters that occurs on the appointment of the chairman of a nationalised industry and its sponsoring minister. These 'objectives letters' set out the precise areas over which the new chairman is to be given clear responsibility, those reserved to the secretary of state, and those over which there should be consultation.

The new Governor could insist, for example, on editorial freedom in publishing the Bank's inflation assessment. He or she could ask for freedom to criticise policy in speeches, and he or she could even insist on the specific right to call publicly for rises in interest rates. Any Chancellor would then go to considerable lengths to placate a Governor who threatened to do so.

Such an arrangement would not be full-scale independence, but it would help to make the Bank a more effective counterweight. The new Governor now has an unusual opportunity to re-establish the Old Lady's influence. It should not be missed.