Great article but, in my view, the excess inflation is deliberate and the climate focus is an excuse/diversion if they get cornered.
Inflation is a soft default where the UK debt is paid back in devalued money. The excess inflation (oops) goes alongside the switch to CPI which understates inflation (oops) and as a consequence overstates GDP (oops).
Good point on inflation as a deliberate soft default, but what makes you think CPI understates inflation? I know it's lower than RPI, but I thought good evidence had been shared that RPI overstated inflation by ~0.7%/year (higher in more volatile times, lower in more stable times), and that CPI was accurate.
I read the first couple of articles on https://notayesmanseconomics.wordpress.com/tag/cpi/ and tried to understand the concerns, but all I got was "RPI is better! CPI doesn't include mortgage interest costs!". Uh, yes, for the very well understood reason that setting interest rates based on interest is self-referential. This is like complaining that the speedo in my car doesn't include how fast the earth is rotating. It's not supposed to.
I tried polling ChatGPT for CPI concerns. It gave me that
1. All inflation measures (yep, including RPI) discount for quality improvements, but it's often hard to know how much you're supposed to discount for. (e.g. my computer today costs about as much in raw £ as 20 years ago, but is 30x as powerful. Should the price be discounted by a factor of 30? My experience as a consumer is better, but it's not 30x better. CPI has discounted them by a factor of 6. RPI has them discounted by a factor of ... 6.)
2. CPI adjusts for people switching when the price of one of two equivalent products rises. On the one hand if you're the consumer then you feel like prices are rising causing you to have to switch, but the inflation measure is saying everything is fine because everyone switched. On the other hand if you don't have this then in a world of volatile prices it's possible to report high inflation over a period where everything ended up at the same price it started (RPI does this).
So far I remain unconvinced that CPI is systematically flawed, or that RPI is better.
It's a good point that after decades of being good at their job, the Bank of England have been surprisingly bad at it since Covid. Timeline wise this isn't caused by Global Warming Everythingism, and deserves a deeper investigation, though Global Warming targets are unlikely to help.
"Since then, it’s failed to get inflation down to its 2% target, rarely even getting it below 2%." The second 2% is probably supposed to be 3%.
I agree you can't demonstrate causality, which is why I didn't claim it. However, if an organisation or team is underperforming, stripping away unnecessary and distracting duties and refocusing them firmly on their core task is standard practice, and one that can be applied here.
I agree that when you're underperforming your core goal you should strip away unnecessary and distracting duties, however I think you're being slippery with "I agree you can't demonstrate causality". No. It's much worse than this. We can demonstrate that global warming targets are not causal of the BoE inflation failures, because the failures started before the targets, and because causes come before effects.
We should strip away the global warming target distraction, but we should also figure out what more fundamental thing has gone wrong at BoE and fix that too.
Hmm, this seems obvious looking at the inflation graph, but looking at UK compared to the G7 it's not so clear. We're not doing well before the targets are introduced in 2021, but it's only after 2021 that we do really badly compared to everyone else. Sadly the graph shared ends in 2023 so we can't check in on whether things got relatively better when the target was revoked.
Agree we should also look at what else has gone wrong.
Claude says we converged in 2024, were worst again in 2025, and mid-pack in 2026 (but that the war with Iran hit countries in very different ways).
This actually supports the 'removing it in 2023 made a difference thesis', but to be honest I wouldn't put much weight on that: given the Bank knew that Labour would be bringing it back in, it's hard to see it would effect culture much, and this is probably more about culture than literally turning a knob, but maybe it did.
My overall thesis would be that the Bank has been somewhat distracted from its core duty by other priorities and duties - formal and informal; i.e. everythingism. This is the most high profile example, so it's the one I wrote about (it's a short, sub-800 piece, not a 4,000 word, not a deep dive).
In terms of private messages people [who I respect to know about this stuff] have sent me since publication, one person said, 'No mandate on geopolitical risk either; it should be just part of their general mandate to manage risk'; and another one mentioned EDI becoming a bigger focus since 2020 and BLM. I've not looked into either, but both reinforce the 'distracted into caring about everything' rather than 'laser-focused on controlling inflation' thesis.
On the precise timing issue, and digging into it a bit following Chris's comment below (re Carney), it's interesting that Carney (as Governor) had started speaking a lot about climate change earlier, and the Bank launched a 'climate stress test' well below the mandate was given. Sunak giving the Bank the mandate may well have been because Carney asked him for it, to justify stuff he was already doing (and allow him to do more).
So there's a question whether, at least initially, the mandate is cause or symptom of the Bank's distraction (though of course once added, it ensures the focus on it continues to his successors).
I think that's compelling evidence that causality is plausible, and I was too quick to dismiss it. I apologise for calling your position slippery.
On the plus side if Hunt was able to make a difference in this way, then making a difference is fairly easy.
On the EDI point I fear getting a public institution to stop being distracted by woke from it's core mission is probably very hard. Any political leader who could reliably accomplish this across many institutions could reap quite a big performance benefit. I think Trump is trying to accomplish this, but I'm not convinced he's managed to take it below his appointed person in charge of each institution (tbf the person in charge does make a difference, but I fear Trump's appointments are as much causes of civil war within the institutions as change), and I suspect a Farage premiership would look similar. Kemi I think is a much more interesting choice.
When Mark Carney was leaving BoE and looking around for another role he landed on environmentalism. To boost his CV he introduced ideas into BoE which got him the job but contributed to the defunding of mining and oil investments causing long term problems for Britain.
The irony as Canadian PM he has been happy to support these.
Underlying issue is regulator is now a career rather than a consolation prize to a sound clubbable man (always a pale male) who had not quite made it to the top but knew the industry and could be trusted to protect the "widows and orphans" without rocking the boat. As last job a certain independence and a gong thrown in.
Yes many issues with the above that can be addressed but far more effective and less harmful than current systems where regulators often do not know their industries and just see it as a stepping stone to something else so embrace whatever is fashionable.
Rot for BoE set in with the tripartite reforms Gordon Brown introduced so no one really knew their job. I recall chair of Lloyds bank at time of GFC saying he had only met the Governor of Bank of England once in passing at the Chelsea Flower show.
You don't really establish any causal link between having a climate change mandate and the bank's poor performance. So this post just seems like you started with a view point and wrote some stuff to back it up. Maybe you're right, maybe you're not.
As I say above, refocusing an underperforming team back on their core objective by stripping away all the distractions that have accumulated is standard practice for improving performance.
We don't need a stewards’ inquiry to determine beyond reasonable doubt the contribution caused by each - we just need to firmly reassert the primacy of the main goal.
Back in 1989 the, then, ex-PM Edward Heath criticised Nigel Lawson's Budget calling him "a one-club golfer stuck in a bunker". Anyone who has played, or even watched golf, knows what he meant, that you need different economic "clubs" for different situations and that trying to use the same "club" for all is doomed to fail. In that case Heath was criticising Lawson's choice to reduce income tax in the previous Budget.
In one sense, the author is quite right. The Bank of England has a remit to stabilise inflation at 2% and their one "club" for this task is variation of short-term interest rates. The problem comes when Governments load additional responsibilities on to the BoE and ask them to control all of them with this single "club". Why they do this is quite obvious, some of the decisions that the Chancellor of the Exchequer needs to make (such as raising income tax, or VAT) makes them unpopular and so they seek to offload the opprobrium on to the unelected BoE Monetary Committee to whom they have given the single "club" of varying interest rates. And they do this, knowing that varying short-term interest rates has a delayed-action effect (e.g. all those on fixed-term mortgages are unaffected until they have to re-mortgage).
A more responsible Chancellor than any we have had, at least since Brown initially gave the BoE this responsibility, would certainly tell the public that they needed a full set of "clubs", including being able to change rates of income tax and VAT. Tying themselves to a commitment not to increase Income Tax, National Insurance, or VAT in their 2024 Election Manifesto was probably the worst decision by the Labour Party under Starmer, as it led directly to Reeves' stealth tax increases which increasingly caused distortions in the economy.
Great article but, in my view, the excess inflation is deliberate and the climate focus is an excuse/diversion if they get cornered.
Inflation is a soft default where the UK debt is paid back in devalued money. The excess inflation (oops) goes alongside the switch to CPI which understates inflation (oops) and as a consequence overstates GDP (oops).
Good point on inflation as a deliberate soft default, but what makes you think CPI understates inflation? I know it's lower than RPI, but I thought good evidence had been shared that RPI overstated inflation by ~0.7%/year (higher in more volatile times, lower in more stable times), and that CPI was accurate.
I read Not a Yes Man Economics blog. He argues there are a lot of weaknesses in CPI that all lead to lower inflation.
I read the first couple of articles on https://notayesmanseconomics.wordpress.com/tag/cpi/ and tried to understand the concerns, but all I got was "RPI is better! CPI doesn't include mortgage interest costs!". Uh, yes, for the very well understood reason that setting interest rates based on interest is self-referential. This is like complaining that the speedo in my car doesn't include how fast the earth is rotating. It's not supposed to.
I tried polling ChatGPT for CPI concerns. It gave me that
1. All inflation measures (yep, including RPI) discount for quality improvements, but it's often hard to know how much you're supposed to discount for. (e.g. my computer today costs about as much in raw £ as 20 years ago, but is 30x as powerful. Should the price be discounted by a factor of 30? My experience as a consumer is better, but it's not 30x better. CPI has discounted them by a factor of 6. RPI has them discounted by a factor of ... 6.)
2. CPI adjusts for people switching when the price of one of two equivalent products rises. On the one hand if you're the consumer then you feel like prices are rising causing you to have to switch, but the inflation measure is saying everything is fine because everyone switched. On the other hand if you don't have this then in a world of volatile prices it's possible to report high inflation over a period where everything ended up at the same price it started (RPI does this).
So far I remain unconvinced that CPI is systematically flawed, or that RPI is better.
It's a good point that after decades of being good at their job, the Bank of England have been surprisingly bad at it since Covid. Timeline wise this isn't caused by Global Warming Everythingism, and deserves a deeper investigation, though Global Warming targets are unlikely to help.
"Since then, it’s failed to get inflation down to its 2% target, rarely even getting it below 2%." The second 2% is probably supposed to be 3%.
I agree you can't demonstrate causality, which is why I didn't claim it. However, if an organisation or team is underperforming, stripping away unnecessary and distracting duties and refocusing them firmly on their core task is standard practice, and one that can be applied here.
I agree that when you're underperforming your core goal you should strip away unnecessary and distracting duties, however I think you're being slippery with "I agree you can't demonstrate causality". No. It's much worse than this. We can demonstrate that global warming targets are not causal of the BoE inflation failures, because the failures started before the targets, and because causes come before effects.
We should strip away the global warming target distraction, but we should also figure out what more fundamental thing has gone wrong at BoE and fix that too.
Hmm, this seems obvious looking at the inflation graph, but looking at UK compared to the G7 it's not so clear. We're not doing well before the targets are introduced in 2021, but it's only after 2021 that we do really badly compared to everyone else. Sadly the graph shared ends in 2023 so we can't check in on whether things got relatively better when the target was revoked.
Agree we should also look at what else has gone wrong.
Claude says we converged in 2024, were worst again in 2025, and mid-pack in 2026 (but that the war with Iran hit countries in very different ways).
This actually supports the 'removing it in 2023 made a difference thesis', but to be honest I wouldn't put much weight on that: given the Bank knew that Labour would be bringing it back in, it's hard to see it would effect culture much, and this is probably more about culture than literally turning a knob, but maybe it did.
My overall thesis would be that the Bank has been somewhat distracted from its core duty by other priorities and duties - formal and informal; i.e. everythingism. This is the most high profile example, so it's the one I wrote about (it's a short, sub-800 piece, not a 4,000 word, not a deep dive).
In terms of private messages people [who I respect to know about this stuff] have sent me since publication, one person said, 'No mandate on geopolitical risk either; it should be just part of their general mandate to manage risk'; and another one mentioned EDI becoming a bigger focus since 2020 and BLM. I've not looked into either, but both reinforce the 'distracted into caring about everything' rather than 'laser-focused on controlling inflation' thesis.
On the precise timing issue, and digging into it a bit following Chris's comment below (re Carney), it's interesting that Carney (as Governor) had started speaking a lot about climate change earlier, and the Bank launched a 'climate stress test' well below the mandate was given. Sunak giving the Bank the mandate may well have been because Carney asked him for it, to justify stuff he was already doing (and allow him to do more).
https://www.bbc.co.uk/news/business-50868717
https://www.centralbanking.com/central-banks/financial-stability/7552461/time-for-mandatory-climate-disclosures-is-now-carney
So there's a question whether, at least initially, the mandate is cause or symptom of the Bank's distraction (though of course once added, it ensures the focus on it continues to his successors).
I think that's compelling evidence that causality is plausible, and I was too quick to dismiss it. I apologise for calling your position slippery.
On the plus side if Hunt was able to make a difference in this way, then making a difference is fairly easy.
On the EDI point I fear getting a public institution to stop being distracted by woke from it's core mission is probably very hard. Any political leader who could reliably accomplish this across many institutions could reap quite a big performance benefit. I think Trump is trying to accomplish this, but I'm not convinced he's managed to take it below his appointed person in charge of each institution (tbf the person in charge does make a difference, but I fear Trump's appointments are as much causes of civil war within the institutions as change), and I suspect a Farage premiership would look similar. Kemi I think is a much more interesting choice.
When Mark Carney was leaving BoE and looking around for another role he landed on environmentalism. To boost his CV he introduced ideas into BoE which got him the job but contributed to the defunding of mining and oil investments causing long term problems for Britain.
The irony as Canadian PM he has been happy to support these.
Underlying issue is regulator is now a career rather than a consolation prize to a sound clubbable man (always a pale male) who had not quite made it to the top but knew the industry and could be trusted to protect the "widows and orphans" without rocking the boat. As last job a certain independence and a gong thrown in.
Yes many issues with the above that can be addressed but far more effective and less harmful than current systems where regulators often do not know their industries and just see it as a stepping stone to something else so embrace whatever is fashionable.
Rot for BoE set in with the tripartite reforms Gordon Brown introduced so no one really knew their job. I recall chair of Lloyds bank at time of GFC saying he had only met the Governor of Bank of England once in passing at the Chelsea Flower show.
You don't really establish any causal link between having a climate change mandate and the bank's poor performance. So this post just seems like you started with a view point and wrote some stuff to back it up. Maybe you're right, maybe you're not.
As I say above, refocusing an underperforming team back on their core objective by stripping away all the distractions that have accumulated is standard practice for improving performance.
We don't need a stewards’ inquiry to determine beyond reasonable doubt the contribution caused by each - we just need to firmly reassert the primacy of the main goal.
Back in 1989 the, then, ex-PM Edward Heath criticised Nigel Lawson's Budget calling him "a one-club golfer stuck in a bunker". Anyone who has played, or even watched golf, knows what he meant, that you need different economic "clubs" for different situations and that trying to use the same "club" for all is doomed to fail. In that case Heath was criticising Lawson's choice to reduce income tax in the previous Budget.
In one sense, the author is quite right. The Bank of England has a remit to stabilise inflation at 2% and their one "club" for this task is variation of short-term interest rates. The problem comes when Governments load additional responsibilities on to the BoE and ask them to control all of them with this single "club". Why they do this is quite obvious, some of the decisions that the Chancellor of the Exchequer needs to make (such as raising income tax, or VAT) makes them unpopular and so they seek to offload the opprobrium on to the unelected BoE Monetary Committee to whom they have given the single "club" of varying interest rates. And they do this, knowing that varying short-term interest rates has a delayed-action effect (e.g. all those on fixed-term mortgages are unaffected until they have to re-mortgage).
A more responsible Chancellor than any we have had, at least since Brown initially gave the BoE this responsibility, would certainly tell the public that they needed a full set of "clubs", including being able to change rates of income tax and VAT. Tying themselves to a commitment not to increase Income Tax, National Insurance, or VAT in their 2024 Election Manifesto was probably the worst decision by the Labour Party under Starmer, as it led directly to Reeves' stealth tax increases which increasingly caused distortions in the economy.