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Watching Wadhwani

The inflation "doves" in the Bank of England may be winning

By Liam Halligan   May 2002

The defining act of New Labour’s economic policy- absent from its manifesto-was granting “operational independence” to the Bank of England in 1997.

Responsibility for the setting of short-term interest rates was handed to a nine-member Monetary Policy Committee (MPC) comprising four in-house officials and four outside experts, with Governor Eddie George in the chair. These arrangements would, the chancellor proclaimed, ensure monetary policy was guided by “the long-term needs of the economy, and not short-term political considerations.” The left groaned at this act of neo-liberal orthodoxy while the financial markets cheered. Long-term interest rates fell in anticipation of low inflation.

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