In recent years, the number of central banks with a relatively high degree of independence has steadily increased, and the experience of some major central banks testifies to the importance of that independence. The Bank of England, one of the oldest central banks in the world, was essentially an agent of the British Treasury for a substantial part of the 20th century.
When the government announced on May 6, 1997, that the Bank of England would be reborn as an independent central bank, U.K. Treasury bond yields fell sharply at longer maturities, likely reflecting a substantial decline in investors’ inflation expectations and their perceptions of inflation risk. Moreover, several studies have shown that U.K. inflation expectations exhibited significantly greater stability in the years following independence.