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The Myth of Central-Bank Independence

The Bank of England’s failure to respond effectively to the worst inflation in four decades underscores the need to abandon the outdated notion that fiscal and monetary policy can be kept separate. If governments are to be held responsible for investment and employment, they should also control interest rates.

LONDON – The United Kingdom’s economic policy is adrift. That was the main conclusion from the House of Lords Economic Affairs Committee’s inquiry into the Bank of England’s failure to predict the worst inflation in 40 years. In a recent report, the Committee criticized the BOE’s internal culture and forecasting models, casting doubt on its ability to get inflation back to the 2% target by 2025.