The Bank of England needs a new vision

There is change coming in Western attitudes towards central banks. After years of independence from government, politicians are beginning to question the enormous power these institutions have accumulated, as well as the priorities of those who run them. In the United States, Donald Trump is demanding cuts to interest rates; in Germany, there is a suspicion that the European Central Bank has ignored the interests of savers in order to prop up profligate southern members of the eurozone.

Here in the UK, the Bank of England has faced the charge of being opposed to Brexit. Mark Carney, the Governor, has talked almost exclusively about the challenges and costs, particularly the dangers of leaving the EU without a deal. In an interview with this newspaper, Gerard Lyons, an economist who has worked with Boris Johnson and who is now one of the favourites to succeed Mr Carney as Governor, offers an alternative view. He wants the Bank to close “the pessimism gap”.

There are risks to leaving the EU without a deal, says Mr Lyons, but it should be made clear that the British economy can cope. The Bank should use international gatherings to advance a more upbeat vision of the UK. Deal or no deal, he thinks that monetary policy might help improve the quantity of lending to the UK economy, alongside more overt fiscal support from the Government.

Mr Lyons’s ideas are carefully phrased, and it is far from guaranteed that he will get the job. But it is interesting to encounter a vision for the Bank of England that better suits a country on the verge of huge economic reform, and it shows that there is an alternative to Mr Carney’s gloom-mongering – which is akin to running commentary on a car crash. The Bank can keep its independence without being seemingly opposed to the democratic decisions of the voters. It can retain its authority without being a prophet of doom.

One of the reasons central banks have faced criticism is because their actions can benefit some groups at the expense of others. An easy money approach will boost borrowing and investment, for example, but may hurt savers if inflation rises too rapidly. Indeed, the Bank of England has overshot its inflation target on repeated occasions over the past few years, much to the anguish of pensioners. It is only right, therefore, that their mandates be debated. It may be time for a fresh approach.