The Bank of England’s management of inflation and its broader monetary policy framework have come under renewed examination as a cross-party committee of MPs launched an inquiry into whether the central bank’s remit remains appropriate three decades after it was granted operational independence.
The Treasury committee announced its inquiry amid a challenging period for the Bank of England, which has faced a more severe and persistent rise in inflation compared to many other advanced economies following Russia’s invasion of Ukraine. The central bank has also encountered criticism over its approaches to quantitative tightening, including its handling of government bond sales.
The committee aims to evaluate how effectively the BoE has maintained price stability and anchored inflation expectations, questioning if the existing operational independence model remains fit for purpose in an economic landscape that has evolved significantly since the early 1990s. It will also assess the implications of monetary policy tools, such as quantitative easing and tightening, especially against the backdrop of elevated public debt levels.
Meg Hillier, chair of the Treasury committee, highlighted the inquiry’s intent to scrutinize whether current arrangements continue to serve the public interest, stating that the committee seeks to understand “how is it working and is the current system fit for purpose?” The review will additionally focus on the Bank’s implementation of recommendations from former Federal Reserve chair Ben Bernanke’s recent review on monetary policy framework and communication, as well as the composition and expertise of the Bank’s Monetary Policy Committee (MPC).
The inquiry arrives amid growing populist skepticism of central banks worldwide. Bank of England Governor Andrew Bailey recently warned that such pressures constitute a “serious challenge” that could undermine economic stability, though he acknowledged that central banks cannot “take legitimacy for granted.”
Sarah Breeden, a BoE deputy governor, welcomed the scrutiny, describing it as healthy to reassess the central bank’s mandate in a world markedly different from when monetary policy independence was first granted. Speaking at a London conference, Breeden noted the shift toward unconventional monetary policies, including the extensive use of quantitative easing, and evolving structural economic challenges.
She also addressed questions about the legitimacy of decision-making by unelected officials, asserting her belief that the Bank retains the appropriate authority to fulfill its role. The Treasury committee’s inquiry will, therefore, explore how the Bank of England balances its monetary policy objectives with its financial stability responsibilities, aiming to ensure it remains effective and accountable in a changing economic environment.