Bank of England Gives a Lesson in Honest Central Banking
Analytical directness and intellectual honesty from monetary policy makers are inspiring.
The Bank of England is reminding the world what a politically independent central bank can and should do.
Photographer: Hollie Adams/Bloomberg
The Bank of England announcements on Thursday will go down in history, not only because of the largest interest-rate increase in 27 years but, perhaps more importantly, for the sort of analytical directness and intellectual honesty that seems to consistently elude other top central banks. Also, the central bank’s unpleasant outlook for the UK economy has implications for the global economy, but not all because of some of the unique circumstances there.
In an 8-1 decision, the Bank of England raised interest rates by 50 basis points and warned that inflation would peak above 13% in October and was unlikely to return to the 2% target before 2025. It cautioned that, given the current policy configuration, the country was staring at the prospects of a recession that would start in the fourth quarter and last through next year, resulting in a peak-to-trough drop in gross domestic product of some 2% and painful declines in real income for many households. Its assessment of the balance of risks to this baseline was not reassuring.