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BOE’s Worst Policy Leak of 21st Century Tests Regime of Secrecy

Craig Stirling and Eileen Gbagbo
·3 min read

(Bloomberg) -- The Bank of England’s worst leak in almost a quarter of a century of monetary policy independence has cast doubt on its ability to keep a secret.

The Sun newspaper’s Nov. 5 scoop on the BOE’s plans for a bigger-then-expected expansion of quantitative easing that day, headlined with the exact outcome that transpired, shines an uncomfortable light on the institution’s practice of taking such decisions and then sleeping on them before they’re announced.

That approach was instituted by Governor Andrew Bailey’s predecessor, Mark Carney, to allow time to produce minutes accompanying the monetary announcement, instead of releasing them a few days later. The former BOE chief bemoaned that as a “drip feed” of news.

While the change might have seemed sensible in 2014 when former Federal Reserve Governor Kevin Warsh proposed it, the associated risk was highlighted at the time by Charles Goodhart, a former member of the BOE’s Monetary Policy Committee.

“There was always a danger, between the time of the decision and the actual public announcement, that there will be leaks,” he said in an interview this month.

The government is already investigating a separate leak that revealed its plans for a second pandemic lockdown. While Britain’s administrative class was previously adept at secrecy, the acrimony of Brexit has apparently fostered a culture of sharing everything from cabinet discussions to classified intelligence.

The sensitivity of the Sun’s information was acute, signaling a possible 150 billion-pound ($200 billion) increase in QE hours before the BOE announced it, along with a furlough extension by the Treasury. The pound immediately fell as much as 0.4% against the dollar.

“The market has to have complete confidence that everybody trades on the same basis,” said David Page, head of macroeconomics at Axa Investment Managers. “The BOE is quite rightly looking at this particularly seriously.”

The outcome of the BOE decision is kept in a tight circle before publication, but it still goes beyond the confines of the central bank. A Treasury mandarin attends MPC meetings to share fiscal plans and keep the government informed of decisions, while the chancellor also has to sign off on any increase in QE.

No matter where the leak originated, the interval between the policy vote on the Wednesday and its release on the Thursday provides vital hours for information to escape.

The euro zone has long taken a different tack. With no choice but to share documents inside the European Central Bank and with officials in 19 countries, presidents including Mario Draghi have often insisted on withholding specific policy proposals until the day of the decision, when the outcome is then announced almost immediately.

The BOE has limited experience of such breaches since it regained control of monetary policy in 1997, but prior economic decisions haven’t been immune.

While the BOE and the Treasury are studying the latest incident, Bailey is unlikely to rush any changes, not least since a sudden overhaul could be disruptive at a time when the country is battling the coronavirus and disentangling itself from the European Union. A spokesman declined to comment on whether the institution was reviewing its approach.

Yet as damaging as one leak on a major monetary decision might be, another will invite ridicule.

“I don’t know where we should be looking next,” said Chris Scicluna, head of economic research at Daiwa Capital Markets Europe, as he wondered which U.K. tabloid can clinch a further scoop on BOE policy. “My guess is the Daily Star.”

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