ECONOMICS

RECENT CHANGES IN THE ROLE OF THE BANK OF ENGLAND

Introduced by Nigel Falls, The Agent, Bank of England, Bristol on, 9 October 1997

Mr Falls is responsible for the distribution of new notes in the South West Region and his branch
maintains accounts for some official bodies. His department, having close links with commerce in the area,
makes reports and forecasts to aid the Bank in London in their decisions on interest rates and other matters.
Following the General Election of May 1997, the Chancellor of the Exchequer had passed to the
Bank responsibility for keeping domestic inflation within a narrow margin of a set level by controlling
interest rates. The Governor was to be aided by additional Government-appointed advisers, but would these
remain independent?
How the new arrangement worked in practice would depend on the personalities of the Governor and these
advisers. In addition, a new and separate body was being formed to regulate financial services and to
protect investors, which had previously been part of the Bank's remit.
In a wide-ranging discussion Mr Falls explained how he expected the new arrangements to work in
practice. The relationship between the Bank and the monetary bodies dealing with financial policy in the EU
was considered.
If we re-joined the Exchange Rate Mechanism (ERM) the Governor of the Bank would be an active
and influential member of the European Bank, but if we did not adopt the Euro his influence would be
reduced. The criteria for joining have been relaxed and only Greece is at present unlikely to meet them, but
the UK may choose not to join at the start. The Bank has the task of assisting the Treasury in predicting
the effect on the UK economy of entry to the ERM at different times, whilst controlling inflation as required,
a very difficult problem.

Rodney Tye.