Complicated trade-offs raise the issue of whether the government needs to change its relationship to the Bank of England, says Prof Costas Milas
Your editorial (The Guardian view on the global bond shock: Andy Burnham should take note, 1 September) implicitly suggests that the global bond shock will bring firmly into focus our government’s fiscal responsibility.
Fiscal responsibility is a precondition for avoiding a further rise in the UK’s cost of borrowing. Nevertheless, fiscal policy has to be considered together with monetary policy. In fact, the current rise in UK yields poses a huge challenge for the Bank of England’s policymakers, who will make their next decision on UK interest rates on 17 September. This is when the Bank’s monetary policy committee (MPC) will announce the amount of government bond sales (or quantitative tightening, QT) to be pursued over the next 12 months.
