The Bank of England’s independence has given it the tools to help deal with the financial crisis and Brexit, but doesn’t make it an all-powerful institution that can solve everything, according to Governor Mark Carney.
Speaking at a conference in London to celebrate two decades of the BOE autonomously setting interest rates, Carney warned against confusing “independence with omnipotence.” He said that while monetary policy could respond to the risks related to the exit from the European Union, most of the adjustments are not in “the gift of central bankers.”
“While carefully circumscribed independence is highly effective in delivering price and financial stability, it cannot deliver lasting prosperity and it cannot solve broader societal challenges,” Carney said. “This bears emphasizing because in recent years a host of issues have been laid at the door of the Bank of England from housing affordability to poor productivity.”
Central banks’ roles have come under increasing scrutiny in recent years. In the U.S., Federal Reserve Chair Janet Yellen has been at odds with the anti-regulatory rhetoric of Donald Trump, who will decide whether to replace her when her term expires on Feb. 3. The European Central Bank has also been criticized for the diverse effects of its monetary policy across countries.
The BOE Governor was speaking before Prime Minister Theresa May, who is expected to highlight on the importance of the U.K.’s free market economy and state that the new and defining characteristics of central banks are “openness and transparency.” Last year, she sparked controversy by saying some central bank actions were not working for average Britons.
The bank has also come under criticism from U.K. lawmakers for appearing to take sides in the Brexit debate and for being too gloomy in its forecasts. In his speech on Thursday Carney asserted the BOE’s right to continue weighing in on the issue, saying “we will continue to assess and express our independent assessment of the risks associated with Brexit.”
Carney also said the need for the BOE to “open and accountable” is greater than ever because of “growing distrust of institutions and the ‘experts’ who reside within them.” That’s a direct pushback against politicians such as Michael Gove, who said during the heated Brexit referendum debate that Britons have “had enough of experts.”
May and Carney are just two of many high profile speakers at this week’s event in London. Outgoing Federal Reserve Vice Chairman Stanley Fischer, IMF Managing Director Christine Lagarde, Banco de Mexico Governor Agustin Carstens and Bank of Israel Governor Karnit Flug are all also due to speak over the two-day conference.
The event comes as the BOE, which added stimulus in the wake of the Brexit vote, moves closer to increasing interest rates for the first time in more than a decade. Chief Economist Andy Haldane said in an interview with Sky News on Wednesday that a hike should be considered good news for the U.K., rather than a source of fear.
— With assistance by Lucy Meakin