Haigh wrote at the time<\/a>: \u201cAs we approach the 30th anniversary of Gordon Brown giving the Bank operational independence to set interest rates, the time is right to re-examine the mandate and see whether better coordination and a greater focus on economic growth should also be included.\u201d<\/p>\n Brown\u2019s surprise decision to make the Bank independent \u2013 announced in the early days of Tony Blair\u2019s first term in 1997 \u2013 formed part of his efforts to bolster Labour\u2019s economic credibility.<\/p>\n The Bank\u2019s monetary policy committee (MPC), made up of five senior Bank figures and four external members, sets interest rates to achieve \u201cprice stability\u201d \u2013 defined as an inflation target set by the chancellor \u2013 these days this is 2%.<\/p>\n This \u201cremit\u201d is reaffirmed each year in a letter from the chancellor to the Bank\u2019s governor<\/a>, currently Andrew Bailey.<\/p>\n It already includes an acceptance of the fact that sometimes inflation must be allowed to miss the target, when choking it off with rapid rate rises could cause \u201cundesirable volatility in output\u201d.<\/p>\n Bailey used this argument himself last month, when explaining why the MPC had not yet raised borrowing costs in the face of the Middle East war, which has driven up energy prices. But some experts still fret about the risks that rates are set too high, jeopardising growth by driving up the cost of borrowing for consumers and businesses.<\/p>\n Economists call the impact of events like Donald Trump\u2019s war on Iran, where inflation goes up because of a shortage \u2013 in this case of oil and gas \u2013 rather than a surge in demand, \u201csupply-side shocks\u201d. This challenge of dealing with these shocks has become an increasingly pressing one in recent years, as the UK economy has been hit by Covid, Russia\u2019s invasion of Ukraine and now the Iran conflict.<\/p>\n The Bank of England was made independent during Tony Blair\u2019s first term in 1997. Photograph: Thomas Krych\/ZUMA Press Wire\/Shutterstock<\/p>\n With extreme weather events becoming more common due to the climate emergency, food price shocks<\/a> are also expected to become more prevalent.<\/p>\n The independent MPC member Swati Dhingra argued in a recent speech<\/a> that leaving the Bank alone to fight these inflation shocks meant higher rates \u2013 which not only slows the economy, but raises the cost of borrowing to fund the massive investment needed to shift the economy to net zero emissions.<\/p>\n Against this backdrop, a growing number of experts have been arguing that monetary policy \u2013 interest rates, in other words \u2013 cannot be the only line of defence against inflation.<\/p>\n As Theo Harris of the left-leaning New Economics Foundation thinktank put it: \u201cThe framework as it stands, in this new era of frequent shocks, is creating a doom loop of economic self-harm.<\/p>\n \u201cSupply-side shocks lead the Bank to raise rates \u2013 or keep them high \u2013 which throws people into unemployment and strangles investment across the economy, making us less resilient to the next shock coming round the corner.\u201d<\/p>\n Solutions laid out by economists include better coordination of monetary and fiscal policy. A recent Fabian Society paper<\/a> called for a new Treasury-Bank coordinating committee, to discuss the trade-offs.<\/p>\n One of its authors, Jo Michell, the professor of economics at the University of the West of England, said: \u201cThe lines are blurred and I think we all really need to grow up and accept that. We\u2019ve got to think of an institutional framework which is viable, isn\u2019t too much of a big jump, doesn\u2019t unsettle the markets \u2013 but does allow some form of coordination: some kind of discussion about how these things interact.\u201d<\/p>\n Indeed, the strict division of labour \u2013 with the Bank handling inflation and the chancellor sticking to tax-and-spend \u2013 which many economists always argued was an artificial one, has begun to break down.<\/p>\n skip past newsletter promotion<\/a>Free newsletter | Every weekday<\/p>\n Sign up to Business Today<\/p>\n Get set for the working day \u2013 we’ll point you to all the business news and analysis you need every morning<\/p>\n after newsletter promotion<\/p>\n Rachel Reeves\u2019s budget last year included a package of measures<\/a> explicitly aimed at bringing down inflation, to allow the Bank to cut rates (a hope dashed by the war).<\/p>\n Burnham confirmed in his leadership speech on Friday<\/a> that he intended to take action to cut the cost of essentials. Working more closely with the Bank could be part of that picture.<\/p>\n Another longstanding suggestion is to give the Bank a \u201cdual mandate\u201d that includes growth as well as inflation \u2013 akin to the US Federal Reserve\u2019s duty to weigh the impact of its decisions against unemployment.<\/p>\n![\"\"](\"https:\/\/www.newsbeep.com\/uk\/wp-content\/uploads\/2026\/06\/500.jpg\")
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