Bank independence

By THIS IS MONEY
Updated:

 

The Daily Mail City team explains the ins and outs of Bank independence

What's this?

The Bank of England, founded in 1694, was given independence in 1997.

This gave the Bank the power to set interest rates on its own, without political interference from ministers or officials.

Before this rates were set by the Bank governor and the Chancellor. Sounds reasonable.

It is seen as one of Gordon Brown's better moves as Labour chancellor. That, and keeping Britain out of the euro. Before independence, interest rates were a political as well as economic tool.

So what's the problem?

The Bank's independence, and particularly that of Governor Mervyn King, is in question.

Critics claim King has strayed into politics. Before the election he branded the deficit racked up by Labour 'extraordinary'.

He has since described the new Coalition government's plans to tackle it as 'strong and powerful'.

So?

Just as the government is not meant to interfere in interest rate decisions, the Bank is not meant to interfere in tax and spend policies.

But critics inside and outside the Bank worry that King is too close to the Coalition's deficit-busting plans.

And now?

The Bank is in a fine mess.

But claims he is a Tory stooge are somewhat undermined by documents obtained by WikiLeaks showing King had 'great concerns' about David Cameron and George Osborne and their 'lack of experience'.

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