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 Bank of England’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 trickery and liability management. In the next post, I will turn to monetary policy. Simon Ward of Henderson Global Investors is the latest to say that anything other than treating temporary profits from QE as government revenue “would be out-of-line with the treatment of other future government liabilities”.
Is the Bank of England maintaining its independence from government? This question has just come from the government – one of the more interesting questions emanating from a Treasury select committee, currently under way.
The questioner took issue with a comment from George Osborne’s letter of reply to Mervyn King’s inflation explanation in February. In the letter, the chancellor said: “For its part, the government’s commitment to delivering its fiscal consolidation plan continues to provide the MPC with the space it needs to target low inflation.”
Mr King was quick to scotch the implication of fiscal-monetary policy co-ordination. “We’ve certainly discussed the case for and against fiscal consolidation and I’ve explained the stance the MPC has taken on monetary policy,” said the governor, but: “There has never been any attempt on any occasion to influence the MPC on what decisions it should take.”
Alistair Darling seems not to think much of Mervyn King’s call to split banks into their utility functions and speculative bits, writes Chris Giles of the Financial Times
Alistair Darling, chancellor of the exchequer has just proposed new legislation “to require that the government reduces the budget deficit year on year”. Rarely has there been an idea either so pointless or so undesirable writes Chris Giles of the Financial Times
Leaked Treasury documents show the UK Treasury is planning to cut departmental spending, contrary to Gordon Brown’s claims. It’s hugely politically embarassing, writes Chris Giles of the Financial Times, but all we’ve really learnt that is new is that the cuts will be a bit deeper than expected.
The Bank of England’s growth forecasts were good, but have been terrible of late. What do the most recent ones tell us about interest rates and the Bank’s view of the recession, asks Chris Giles of the Financial Times