The Bank of England’s credibility is at stake

Britain needs a governor who is willing to stand up to the government – and stand up for the Bank’s independence

The markets may have paused for breath but the aftershocks from the chancellor’s “Kami-Kwasi mini-Budget” – that crack came courtesy of Labour’s Wes Streeting – continue.

The pound recovered a bit of ground, as usually happens the day after markets throw up, but it remains stuck in the sale section. Ditto Britain’s debt, which there’s going to be a lot more of. Our bonds currently sit alongside those issued by banana republics. How long before the ratings agencies class them as junk?

The Bank of England’s governor Andrew Bailey said the Monetary Policy Committee (MPC) would “not hesitate” to act to raise rates to restore a modicum of sanity. Trouble is, hesitating is exactly what it is doing.

The clearing banks who lend to you and I, on the other hand, have been pulling their mortgage deals faster than Tory MPs can run and hide from angry voters. In the wake of this godawful train wreck, the Bank’s former deputy governor Charlie Bean went to the BBC to say he – kind of, sort of – would have pressed for an emergency meeting of the MPC, had he still been in the thick of it: “On this occasion, if I had still been at the bank in my role as deputy governor, I certainly would have been counselling the governor that I think this is one of those occasions where it might have made sense (to call a meeting).”

So is that a maybe or is it probably? I think it’s a probably. But such equivocation is precisely the problem. If he’d tapped on Bailey’s door, he would have been right to do so. I think. It’s kind of catching isn’t it? But what would have been the answer: “Well, I’ll think about it. Never fear, old bean, we’ll do what’s necessary. I won’t hesitate.” ?

Does anyone imagine Mark Carney, Bailey’s predecessor, still sitting on his hands at this point? The thing about Carney was that he was quite prepared to nettle his political masters – and the right-wing press too, when he felt it necessary. He would also have brushed off the bellyaching of backbench of Tory MPs – who are currently trying to blame a mess of their own making on Bailey – as the buzzing of pointless mosquitos.

I also doubt anyone would be threatening the Bank’s independence at this point. A member of the globe-trotting elite of the financial community, with a CV full of roles – any one of which would have made the career of another – Carney was hard to land a blow on. Bailey is different, having spent most of his career at the Bank with a brief sojourn as the boss of the Financial Conduct Authority, a poisoned chalice that he just about managed to survive (even if it was touch and go at points).

He’s much more grounded in the British establishment. He also has a different style. More collegiate and consensual. Less assertive. Can Bailey, who has already been accused of sleeping at the wheel as inflationary pressures started to build, now shake off his cautious instincts and take control in the midst of a crisis created in Westminster?

Part of the pound’s weakness is born of the markets’ perception that he won’t press the button and take the flak that will come with doing so. That they have no confidence in the Truss-Kwarteng doomsday cult is clear. But they clearly don’t think Bailey is tough enough to stand up to them.

The MPC has consistently gone for half-point rate rises when other central Banks have being going harder, and faster. The US Federal Reserve in particular. It has pushed through three consecutive 0.75-point rate raises. This has created problems across the globe because the dollar is the world’s reserve currency, in which energy and a large basket of goods are priced.

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Having investors flocking to it has weakened other currencies and has clearly exacerbated Britain’s woes. But you have to play with the cards you’re dealt, however painful that may be. Once inflation takes hold, it is desperately hard to put down – even when you have a sensible and competent government, which the one Truss has put together is not even close to being.

Britain needs a governor who is willing to stand up to the government – and stand up for the Bank’s independence. Bailey needs to subtly shake his fists, as some of his predecessors were willing to do. That is counter to his instincts – and the markets know it, which is a problem for all of us.

Who else can Britain rely on now the wolves are firmly at the door and the government has been taken over by Spongebob and Squarepants? Hard medicine from the Bank now might serve to stave off something worse down the track. But Bailey has to prove he can match words with actions. I’m not sure that he can.