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Prime ministers

Bank of England's Power Surge: Andrew Bailey Unchallenged Amid Rishi Sunak's U-turn

Strategic Insights

— 2 min read

After Liz Truss's shock resignation, senior ministers and backbench Tories sought to pin the blame for her downfall on Andrew Bailey, the Governor of the Bank of England. However, the Bank's intervention in financial markets was not the sole reason for Truss's departure. The then-Prime Minister's mini-Budget, which included a series of unorthodox policies, failed to deliver, and the subsequent market turmoil led to a loss of confidence in her leadership.

Key Takeaways:

  • The Bank of England's failure to regulate pension funds properly and its decision to pull the plug on emergency support for bond markets were significant factors in the crisis, according to Narayana Kocherlakota, former president of the Federal Reserve Bank of Minneapolis.
  • The Bank's intervention in financial markets was seen as a coup by some, with Bailey's warning that Truss should not challenge the Bank's rule-making powers or change its mandate sparking debate.
  • Bailey has denied any involvement in Truss's resignation, stating that he would never take such action.
  • The U-turn by Rishi Sunak on plans to enable the Government to override the decisions of City regulators is a victory for Andrew Bailey and the Bank of England, as well as a setback for Brexit.
  • The proposals to relax Solvency 2, a Brussels rulebook requiring insurers to build vast capital buffers on their balance sheets, were seen as a key area where regulators had stood in the way.
  • The head of the Bank's Prudential Regulation Authority, Sam Woods, and the boss of the Financial Conduct Authority, Nikhil Rathi, had fiercely resisted the move, warning against the consequences.
  • The Bank's independence is critical to its inflation-fighting credentials, with the Monetary Policy Committee comprising several former Treasury insiders leading to concerns about diversity of thought and opinion.
  • The Government's proposals to introduce a call-in power to give ministers the ability to overrule regulatory decisions in extraordinary circumstances were met with opposition from the Bank.

Statistics:

  • The peak inflation forecast is over 13pc.
  • The Bank of England's target inflation rate is 2pc.
  • Andrew Bailey has been Governor of the Bank of England since 2019.
  • The Monetary Policy Committee has several former Treasury insiders, leading to concerns about diversity of thought and opinion.
  • The Bank has announced several interest rate hikes in recent years in an effort to combat inflation.

Sources:

  • "I did not depose Liz Truss. I would never do anything like that" - Andrew Bailey, in an interview with Sky News.
  • "That I'm afraid is wrong" - Andrew Bailey, in an interview with Bloomberg television.
  • "I did not depose Liz Truss. I would never do anything like that" - Andrew Bailey, in an interview with Sky News.
  • "I did not depose Liz Truss. I would never do anything like that" - Andrew Bailey, in an interview with Bloomberg television.
  • Narayana Kocherlakota, former president of the Federal Reserve Bank of Minneapolis, citing the Bank's failure to regulate pension funds properly and its decision to pull the plug on emergency support for bond markets.
  • Sam Woods, head of the Bank's Prudential Regulation Authority, and Nikhil Rathi, boss of the Financial Conduct Authority, warning against the consequences of the proposed relaxations of Solvency 2.

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