The Bank of England loses its mojo

Mabbett, Deborah (2022) The Bank of England loses its mojo. [Editorial/Introduction]

Abstract

In early February, when the Russian invasion of Ukraine was still an unimaginable prospect, the Governor of the Bank of England walked into a political storm by proposing that workers should refrain from pressing for substantial wage increases to compensate for the rising cost of living. Martin Sandbu of the Financial Times nailed one problem with a tweeted question: ‘why does the governor of the Bank of England encourage restraint in wage demands but not call for restraint in businesses’ attempts to protect their profit margins?’ Some earnest corrections by Bank officials followed: a tighter monetary policy would suppress demand and put pressure on profits as well as wages. But the damage had been done, and a bigger question loomed in the background. Which century is the Bank living in? Its analysis seemed old fashioned to the point of nostalgia. Governor Bailey invoked a world in which inflation expectations drove actual inflation, and a credibly independent central bank could influence expectations by adhering firmly to its inflation-targeting mandate. This was the world before the financial crisis, before central banks turned their attention to financial stability, flooding markets with liquidity, fuelling epic asset price bubbles and protecting the wealth of relatively few people while many struggled in a relentlessly competitive labour market.

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