Officials I have spoken to since venting my anger at the raid on the government’s quantitative easing surplus have struck a decidedly disappointed tone. It was a shame I didn’t understand that there was no trickery involved; it was a pity I could not see that the move was standard practice in public sector liability management; and it was sad I had questioned whether the the Treasury’s move, which itself eased monetary conditions, undermined the BoE’s operational independence to set monetary policy.

While I have convinced a sizable majority of readers, I note that some people are swallowing these lines without much challenge. Here I will deal with the independence of monetary policy.

Let me be absolutely clear. Sir Mervyn King, BoE governor, rejects my arguments entirely. He wrote on November 9 that the monetary policy committee “was content that its ability to set the appropriate stance of monetary policy would not be affected by this action”. MPC members I have spoken to subsequently have reiterated this argument. They decide monetary policy last, they say, so they are in control. Read more