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The Bank of England After Boris

The risk of raising the UK central bank's inflation target when price increases are out of control is obvious. But doing so might give policymakers a little more flexibility, and bring about a more stable monetary-policy regime in the longer term.

LONDON – The performance and mandate of the Bank of England have become central issues in the contest to succeed Boris Johnson as leader of the Conservative Party, and therefore as the United Kingdom’s prime minister. But with recent reviews of other leading central banks offering little guidance amid today’s surging inflation, it might make sense to revive an old idea for reforming the prevailing anchor for monetary policy.

It is not surprising that the BOE’s performance is in question, given the central bank’s 2% annual inflation target. With UK inflation currently running at 9.4% and expected to exceed 13% later this year, something has clearly gone wrong. But some of the Conservative leadership candidates, and notably the frontrunner, Liz Truss, have gone beyond merely criticizing BOE Governor Andrew Bailey for taking his eye off the ball. They talk about changing the BOE’s objectives, or even its very status. Truss has pledged to alter its mandate to toughen its focus on inflation, and one of her lieutenants has asked whether the BOE is “fit for purpose in terms of its entire exclusionary independence over interest rates.”

No, I don’t know what that means, either, but it sounds threatening. Others have talked about being “more directive in setting [the BOE’s] mandate” and suggested that some of today’s inflation has been caused by growth in the money supply. That hints at a possible reintroduction of money-supply targets, which were in vogue under Margaret Thatcher’s government in the early 1980s.

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