BoE should raise interest rates or risk losing independence, says Hague

The Bank of England should raise interest rates or risk losing its independence, William Hague said on Tuesday.

Hague, former foreign secretary and leader of the Conservative party, criticised the central bank’s reliance on quantitative easing.

In his column for the Telegraph, Hague wrote: “I am not an economist but I have come to the conclusion that central banks collectively have now indeed lost the plot.

“The whole point of their independence was that they could be brave enough to make people confront reality. Yet in reality they are blowing up a bubble of make-believe money to avoid immediate pain, except for penalising the poor and the prudent."

He criticised the central banks’ use of quantitative easing, which was initially used in response to the 2008 financial crisis as the “trouble is they are, to varying to degrees, still doing it”.

“Like doctors keeping their patients on a drip many years after an operation, they are losing credibility and producing very dangerous side effects.

“Some central bankers would mount a strong defence of their approach. They would explain that there is a global glut of savings, so interest rates are in any case kept low by market forces. This is true, but it does not mean those rates have to be driven to zero, or even below zero now in some places, by the authorities.

“I have bad news for them. The accumulating effects of loose monetary policy globally are intensely political. When pension funds renege on promises, or inequality widens further, or savers become desperate, huge public and political anger is going to burst over the heads of the world’s central banks."

He said the solution would be for the US Federal Reserve to raise interest rates as other central banks would follow, but if they fail to do so “the era of their much-vaunted independence will come, possibly quite dramatically, to its end”.

The Bank of England became independent under Labour Chancellor Gordon Brown in 1998 in order to set rates free of politics.

Hague’s comments follows the Prime Minister's Conservative party conference speech in early October, where Theresa May criticised monetary policy and low interest rates.

She said: “While monetary policy, with super-low interest rates and quantitative easing, provided the necessary emergency medicine after the financial crash, we have to acknowledge there have been some bad side effects.

“People with assets have got richer. People without them have suffered. People with mortgages have found their debts cheaper. People with savings have found themselves poorer.”

On Friday the BoE’s Governor Mark Carney said that he would not take instruction from politicians on how to do his job after criticism from May.

Carney has not indicated if he will serve out the full term as governor or quit in 2018 after five years, which he initially said he would do.

Chancellor Philip Hammond told the Financial Times he hoped Carney would stay until 2021.