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Bank of England Governor Andrew Bailey hit back against former U.K. Prime Minister Liz Truss, saying her downfall was caused by her decisions and those of her team, rather than any “deep state” conspiracy.
“I don’t know what she means by that,” Bailey told the Guardian in an interview published on Thursday.
“I’ll say this about some of the things that are said about the ‘deep state’: it’s not easy running public institutions these days,” Bailey said. “People say there’s somehow an agenda for this or an agenda for that, and the agenda really is that we’re trying to run an institution to its maximum effectiveness.”
Truss has repeatedly blamed the Bank of England for failing to anticipate the market consequences of her budget, which she had hoped would put the British economy on a faster growth path. The massive fiscal stimulus program, which was announced at a time when the U.K. economy was running close to full capacity with inflation over 10 percent, sparked fears that inflation would get completely out of control and triggered a broad sell-off in bond markets.
That sell-off then developed a momentum of its own, creating a vicious circle as a highly-leveraged segment of the pensions industry was forced into fire sales of government bonds to raise cash. The circle was broken by the Bank’s intervention. Research by the Bank indicated that around two-thirds of the sell-off was due to that short-circuit in gilts, rather than the underlying news that triggered it.
“I remember Liz Truss saying at the time: ‘It’s a financial stability issue, it’s the Bank of England’s job to deal with it.’ We did,” Bailey told the Guardian. “We came in and we used our intervention tools and dealt with it. But it is a bit ironic for somebody who is so critical of regulators to then come out and say the problem is that the Bank of England wasn’t regulating.”
Elsewhere in the interview, Bailey said there was scope for the Bank to be “a little more aggressive” in cutting interest rates if inflation continues to decline. The pound, which hit its highest in over two and a half years against the dollar last week, fell nearly 1 cent in response to $1.3161 by 8:30 in London.
