Modelled on the Independent Evaluation Office of the IMF, we will create a unit to support this, with a director reporting to the Chairman of the Oversight Committee. It is not just our governance but also our commitment to transparency and openness that must be further enhanced. Transparency and openness are central not just to our legitimacy to perform these new tasks on behalf of the citizens of the United Kingdom. They are also central to our effectiveness in performing them. Just as Governor King described in his Mais Lecture 9 years ago, openness about what policy is seeking to achieve can make it more effective.21 In monetary policy, that helps to anchor inflation expectations and to support countercyclical movements in the policy setting. To that end, we have introduced forward guidance to reduce uncertainty about the way monetary policy will be set as the recovery gains pace. Our Inflation Report has evolved in the past year to contain more information about the key judgements underlying our forecasts and to widen the set of economic indicators for which we publish forecasts to include the labour market, components of GDP, the world economy and household incomes and saving. It will evolve further, including using our new organisational structure to draw stronger distinctions between staff and MPC forecasts. We will also review the case for releasing transcripts of our policy meetings after some years, and report publicly to the Oversight and Treasury Select Committees on the outcome of that review.
That criticism faded as the Bank gradually assumed the role of lender of last resort, adopting Bagehot’s principle that it should lend freely against good collateral at penalty rates in times of crisis.3 By the end of the 19th Century the Bank of England had informal responsibility for a broad range of policy areas. It remained the fiscal agent for the government. It maintained monetary stability through the operation of the Gold Standard. And it promoted financial stability through its role as the effective lender of last resort, and more generally – through the judicious exercise of the Governor’s eyebrows – as the institution which managed and resolved financial crises.4 While the Bank’s responsibilities varied over the following century they remained broad and largely informal until 1997. The transformative changes that year gave birth to a modern Bank with a narrower focus on price stability grounded in clear statutory objectives, and with the operational independence to pursue them. Independence was the solution to the time inconsistency problem, which causes policymakers who promise low inflation – but then go for faster growth – to get neither. Removing political considerations from the conduct of monetary policy made possible a credible commitment to low inflation. Strong accountability mechanisms and transparency were put in place to legitimise that independence. Those changes reflected the belief that price stability was the best contribution a central bank could make to macroeconomic stability and by extension to the broader public good.