The Bank of England’s Knockout Artist

It is the failure of the UK government to amend the statute that dictates the complex structure of knockouts that the BoE’s ingenious staff has been obliged to devise. The unemployment threshold, linked to forward guidance, can be seen as a backdoor way of adding a second objective. But one would surely not start from there if that were the long-term policy aim.

It would have been far clearer to address the issue head on and change the BoE’s mandate. That would have painted the new regime with a veneer of democratic legitimacy, giving it greater authority. The government, however, decided not to open up the issue in parliament.

The objectives of the new monetary-policy approach are admirable. The UK economy, while moving forward, is still operating well below capacity. But to keep all these balls in the air, and avoid knocking himself out, Carney will need all the creativity and agility of that other great Canadian export – Cirque du Soleil.

Howard Davies, former Chairman of Britain’s Financial Services Authority, Deputy Governor of the Bank of England, and Director of the London School of Economics, is a professor at Sciences Po in Paris.

Copyright: Project Syndicate, 2013.

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