Theresa May might have just started a war with the Bank of England

Prime Minister Theresa May just gave her first speech as Prime Minister at the Conservative Party’s annual conference, setting out her vision for the future of Britain under her leadership.

The speech lasted over an hour and covered almost every policy area but for watchers of the British economy, and in particular the Bank of England, one moment stood out.

May told the audience in Birmingham that a “change has got to come” when it comes to UK monetary policy.

She didn’t expand on exactly what she meant by a change, but it was a pretty clear indication that May thinks monetary policy from the Bank of England isn’t working for average Brit.

Here May’s full quote:

“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.

“A change has got to come. And we are going to deliver it. Because that’s what a Conservative Government can do.”

There is a growing movement that argues the extremely loose monetary policy we’ve seen since the financial crisis is actually doing more harm than good, with the “Positive Money” movement spearheading a move away from quantitative easing and towards fiscal stimulus — the government spending money. May looks to be backing at least the first part of that argument, saying that monetary policy has caused people without assets to “suffer.”

Numerous banks and financial institutions are now backing fiscal stimulus with Deutsche Bank, Barclays, HSBC, Credit Suisse, Morgan Stanley and Bank of America Merrill Lynch all publishing notes to investors backing fiscal stimulus in recent months. “Fiscal easing is gaining traction globally while central bankers are hesitating to add more monetary stimulus to an already ultra-accommodative stance,” Antonio Garcia Pascual at Barclays argued recently.

BoE Governor Mark Carney has also faced criticism for his approach to monetary policy, being accused of “holding a gun to the head” of Chancellor Philip Hammond during a hearing in front of the House of Commons’ Treasury Select Committee (TSC) in September.

The TSC’s chairman, Andrew Tyrie, made the accusation when asking Carney about a meeting with Hammond to grant the Bank of England an indemnity approving of the term funding scheme introduced by the bank at the beginning of August, arguing that Hammond had virtually no choice but to grant the indemnity. Understandably, Carney firmly denied that suggestion.

Whether or not May’s comment leads to any substantive change in real life is unclear, but it is a big precedent to set. Carney and his staff may report to the Treasury, but the bank is supposed to be completely independent of government, so a big intervention from May and chancellor Philip Hammond would be a massive step.

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