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Bank of England

Volume 704: debated on Tuesday 14 October 2008

asked Her Majesty’s Government:

When the Chancellor of the Exchequer last had an official meeting with the Governor of the Bank of England; and what was discussed.

My Lords, I congratulate my noble friend Lord Barnett on his birthday. I wish him a very happy day and express the hope that his supplementary will make me happy, too. The Chancellor of the Exchequer regularly has meetings with the Governor of the Bank of England to discuss a wide range of issues.

My Lords, I thank my noble friend for his kind wishes and his not unexpected reply. Has he seen the report in the Times, which occasionally gets it right, that there is tension between the governor and the Treasury? That is perhaps not surprising given his recent views. Is it not hard to believe that the governor is still talking about—or has been talking about—increasing interest rates? I do not know whether he consulted his committee in deciding recently to cut them, which we were happy to see. I hope that my noble friend agrees that we are living in unprecedented times when the Chancellor of the Exchequer and the Prime Minister are telling major international banks what to do. Will my noble friend ask the Treasury to tell the governor what to do; namely, to cut interest rates in a big way? That is urgently needed. If he will not do that, will he at least have discussions on the matter?

My Lords, I knew that I would be grateful to my noble friend. Of course these are difficult times and each of the key actors on the scene of saving the financial system and assisting certain banks has a different viewpoint on the contribution needed in the longer-run economic perspective. My noble friend will appreciate that the Government do and will respect the independence of the Bank of England. It is for the Monetary Policy Committee to reach its judgments. In reaching those judgments, it will take into account the fact that certain aspects that contributed to the recent rise in inflation, particularly world oil prices and world food prices, look as if they have somewhat reduced.

My Lords, I shall press the Minister further on that point. In the real economy, the biggest single thing that will reduce the depth of the recession is a major cut in interest rates, because that affects both consumers and businesses. Will the Chancellor not only make that case to the governor but remind him that the Bank of England Act enjoins the Monetary Policy Committee to take account of levels of economic activity and unemployment when taking its decisions?

My Lords, as ever, the noble Lord is well informed. He is absolutely accurate about that aspect of the Bank of England Act. He will recognise that interest rates were cut by half a per cent only a short while ago. That is an index of the concern about the difficult times ahead for the British and the world economies. He will appreciate the extent to which there was co-ordinated action across central banks for the reduction in interest rates. That is the way in which we see the international position improving.

My Lords, we completely support the Government in maintaining the independence of the Monetary Policy Committee and we completely resist any calls from the Liberal Democrats to suspend its independence. That is extremely important. May I take the Minister back to a question that he did not answer yesterday? He was asked what the impact would be on money supply and inflation of yesterday’s funding of the banks in the bail-out. Today, we have heard that CPI inflation is now at 5.2 per cent, which is more than two and a half times the Bank of England’s target. Will the Minister, who did not answer the question yesterday, at least say whether the Bank of England’s job is now harder or more difficult following yesterday’s government action?

My Lords, these are exceptional times and the Governor of the Bank of England is facing difficulties with regard to his part in the management of the economy. Who could doubt that in these exceptional circumstances? These are circumstances that I had hoped were exceptional enough for us to have a constructive question from the Opposition for a change, rather than constant criticism. Let me make it absolutely clear that, as I have indicated, certain aspects with regard to international inflation are moderating to a degree. When the noble Baroness berates the present rate of inflation, she will know that it is still comfortably below the average of the years in which the Opposition were last in power.

My Lords, we are indebted to my noble friend Lord Barnett for tabling this Question, which enables me to get something off my chest. We are living through the worst economic crisis in living memory. I looked at the forthcoming business to see when we were going to have a whole day’s debate on the subject, but I looked in vain. We have been badly let down by the usual channels, which I regard as an absolute disgrace. Will my noble friend have a word with our share of the usual channels, to draw that to his attention? Will he point out to him that, if we have such a debate, he will have a rare and rather pleasant experience, as he will hear a number of speakers from this side cogently and strongly supporting the Government?

My Lords, I look forward to that debate with the keenest anticipation. I should have thought that three Statements in the past seven parliamentary days plus the opportunity for questions almost every day have at least kept us up to pace with the changes occurring with regard to the rescue of the financial system, but I am only too happy to indicate to the usual channels that there is considerable pressure for a debate on these issues, in which a great deal of constructive work will no doubt come from all parts of the House, including, I hope, from the Official Opposition.