Bank of England rudderless with interest rate dilemma looming large

The City is looking for the Old Lady's leadership to get a grip

The traditional pillars of the City of London have all downsized or relocated to outside the Square Mile. Bloomberg
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Smack-bang in the middle of the City sits the Bank of England. The Old Lady of Threadneedle Street, as the place is affectionately known, is a reassuring presence, its thick walls and imposing grandeur oozing power and control.

The vast Bank building is an unashamed throwback, a reminder of how things were. Of the once great City institutions, only Lloyd’s of London is still in situ. Its corner, though, is all steel and glass, and for how long it remains even there is up for consideration. The rest, the various exchanges and the main regulators, the traditional pillars, have all downsized or relocated out of the Square Mile.

The privilege of working in the huge, famous edifice is not all that it was, measured at least by the fact the daily roll call would not even get up to half full.

At a time of great and growing crisis, not to mention market turmoil, the Bank of England, the central bank, responsible for ensuring the UK has financial and monetary stability, is largely in work from home mode.

Perhaps this should not be surprising. The man in charge Andrew Bailey chose to make one key broadcast from his kitchen and not from his office at the height of the Covid crisis. It was not a good look, but if anything the calls on the Bank and its leader to get a grip have only grown.

The roads and pavements might be busy, but up above, most of the rooms are quiet. The City still has not returned to full-time working and there are doubts it ever will. All of which combines to afford the Bank a lost, marooned air.

An inability to lead

Right now, you could be forgiven for supposing they would all be in there, urgently discussing and analysing, and burning the midnight oil, as the country and rest of the world grapples with the shocks of a war and a global pandemic. But no, these public servants are mostly at their homes.

What’s alarming about this is the inability of Bailey to command and lead. In City parlance, he is the governor, the boss. But increasingly, like the liveried doormen at the entrance of his more than half-empty headquarters, he appears to be unsure of his role.

That sense is not helped by the behaviour of the current occupants. Take working from home. Following a consultation at the Bank, its 4,000 staff are required to go into the office 40 per cent of the time from this month, with plans to increase that to 50 per cent of the week over time.

With work-from-home options, fewer people are commuting to either modern or traditional offices. Bloomberg

Bailey has struggled to convince in recent months. Comments from him and his colleagues on interest rates have only served to confuse rather than clarify. This is dangerous territory — the City is looking to the guv’nor for authority, not wooliness.

On Thursday, the world will find out just how the pressure has impelled Mr Bailey to show his mettle. A half-point or more rise in rates would go a long way to setting a change of tone.

A historical building alongside a modern skyscraper in the City of London. Bloomberg

It’s emerged that Bailey is spending £200,000 on private consultants to create a “mission statement” for the Bank that will define “the essence of the organisation”. The consultants from The Storytellers, a London firm, will be paid £203,000 of taxpayers’ cash for four months’ work.

Only two months ago, the Bank spent £50,000 on a “softening” of its logo, to make the design more “inclusive”. Out went a pile of coins at Britannia’s feet and the St George’s Cross on her shield was replaced with the union flag.

Describing “the essence” is what you get on menus of restaurants that crave to be taken seriously or labels of cheap wine or packs of perfume — it’s not what you expect from somewhere that is meant to be as sure-footed as the Bank of England.

It’s not something either, that to my knowledge Bailey’s predecessors ever felt obliged to pay good money to describe. The idea of Eddie George, for instance, issuing such a commission beggars belief.

The dragon is a symbol of the City of London. Bloomberg

The Bank has been in existence for 328 years, and independent of government for the last 25 of those. You would think by now they would know what it is for.

It’s worrying that Bailey should be so uncertain. He chairs the Bank’s powerful monetary policy committee as well as the committees for financial policy and prudential regulation.

While those bodies cannot be expected to devote their time to the wording of a mission statement — presumably they’ve got more pressing items to occupy them — it is a topic that would sit perfectly well with the Bank’s court of directors.

This, in effect, is its board, the 12-strong (five executive and seven non-executive) group that is charged with setting the Bank’s strategy and budget and taking key decisions on resourcing and appointments. Bailey sits on the court, which is chaired by Brad Fried.

The court should hold the governor and his deputies and the senior management to account. Its published minutes, though, give the impression of a committee that is too close for comfort with those it is meant to be challenging.

In the December minutes, published in February, the court “noted” that staff pay is up for review and rises would be assessed according to “a new performance approach”.

There is no sign of anyone raising a hand and querying whether this was appropriate, given that Bailey, who is paid £575,000 a year, and was present at the meeting, has argued repeatedly for pay restraint.

The City is wanting more, too, from Bailey and co in another respect. The Bank should be championing the City, shouting for London. The City and the UK’s wider financial services industry are vital to the UK economy — without them we would be truly lost.

At present, they are wobbling — they were inexplicably sidelined by the government during the Brexit negotiations, and EU and global competition is fierce and getting fiercer all the time. This is without considering the problem of working from home, after-effects of Covid and shortage of staff that many City leaders are having to deal with.

In short, the City is crying out for a voice, someone who can speak up for their hegemony, who can fight their corner. Bailey could be that person, spreading that story. Hopefully, The Storytellers will tell him how.

Published: June 15, 2022, 11:32 AM
OPINION