Leading contender for the position of British prime minister suggested that the government should set a ‘clear direction of travel’ for monetary policy, but a top Bank of England official disagreed.
One of the nine members of the Monetary Policy Committee, which sets interest rates, Michael Saunders said it would be better for potential Conservative Party leaders to leave the fundamentals of the country’s monetary policy framework alone.
One of the leading candidates to succeed Boris Johnson, Foreign Secretary Liz Truss, declared over the weekend that she would ‘establish a clear direction of travel’ with regard to monetary policy.
‘It is pretty evident that monetary policy is not governed by the government. In order to meet the 2 percent inflation target, which is essential to the UK’s financial stability, that is established by the independent MPC,’ Saunders addressed the crowd at a Resolution Foundation event in London by saying, ‘Mework,’
‘Whether interest rates will rise or fall is a topic of constant discussion. The underlying principles of the UK’s monetary policy framework, however, I believe are critically crucial and should be left alone.’
According to Saunders, the credibility of British monetary policy was at risk.
The credibility of the policy framework hinges on the MPC’s capacity to ease monetary policy promptly and efficiently during the recession of 2008–2009 and throughout the epidemic.
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