Should the Bank of England really be independent?
Earlier this week we saw the beginnings of what could turn out to be a major spat between the UK government and the Bank of England. Gordon Brown came out with a suggestion that a tax on all financial transactions should be introduced worldwide in order to create a fund which would bailout the financial sector in the event of future credit crunch like situations. However, Mervyn King pointedly sided with Pres Obama and his banking tax levy which now makes the UK government and the Bank of England look further apart than ever before.
While it should be remembered that it was the Labour Party which give the Bank of England its independence there is a feeling that both parties, especially in the current economic environment, need to be singing from the same hymn sheet. We have seen numerous comments from both parties in the short term which are certainly at loggerheads and have caused confusion in investment markets.
However, the value of an independent Bank of England should not be underestimated because historically political pressure and political agendas have tended to dominate the economy. Even if eventually the Bank of England does decide to go with the UK government the value of a different opinion, even if just to bring other arguments into the discussion is vital.
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