RUTH SUNDERLAND: Firing Bank boss Andrew Bailey not the answer

Those calling for the defenestration of Governor Andrew Bailey, cruelly caricatured as “The Plank of England,” should be careful what they wish for.

The Bank’s mission is often to control inflation. In fact, its stated aim is to promote the well-being of the people of the UK by maintaining monetary and financial stability.

Bailey has helped bring fear and hardship to millions of British citizens and failed and he owes us all an apology.

However, firing him can easily do more harm than good. In the short term this would create even more instability in the markets and in the longer term could fatally undermine the Bank’s independence.

In any case, it is almost impossible to get rid of a governor. Consciously, to reduce the threat of political interference and because monetary policy is a long-term matter. Governors get eight-year terms – Bailey isn’t even halfway through – and he can only be impeached for crime or insanity.

He may agree to negotiate a dignified exit at some point before his term ends, but he may not.

Suppose a way could be found to get him released, it would seriously shock the money markets. It would also make it more difficult to attract high-quality candidates in the future.

Instead, the Bank needs less groupthink and greater openness to independent thinking. The orthodoxy that seems to have seeped into the nine-member Monetary Policy Committee (MPC) that sets interest rates is not working.

The MPC should be more diverse, not in terms of more women or minorities – although that can also be helpful – but intellectual diversity.

As things stand, the committee is dominated by former Treasury figures and new Keynesian economic ideas. Three MPC members are ex-finance ministers, as are all four deputy governors.

This has undoubtedly led to errors in reading the economy, particularly with regard to the money supply, which the MPC may have previously warned of the threat of inflation.

Monetarism, which was acceptable in the 1980s, became a dirty word. It was associated with the harder side of Thatcherism, massive job losses and devastated communities. But the monetarists have made a comeback. They correctly predicted that inflation would rise after observing an increase in the money supply.

The Bank paid little or no attention to it, insisting that inflation was primarily caused by energy prices and supply chain problems, which it did, but not exclusively.

In the 1980s, the money supply became an obsession, with some damaging consequences. But it’s quixotic to go to the other extreme and ignore it completely.

This is not to recommend cluttering the MPC with monetarists: the committee could also benefit from hiring industrial and behavioral economists.

If Bailey is kicked out, there is a danger that the independence of the Bank of England will effectively come to an end.

Nobody should want that. If politicians are in charge, they could not resist manipulating rates for their own ends.

The economist Roger Bootle has pointed out that there used to be a notable tendency for rate cuts to coincide with Tory party conferences. Labor would be just as bad.

Whatever the bank’s shortcomings, it is the least bad option.