How to preserve the benefits of central-bank autonomy

ON MAY 6th 1997 Gordon Brown, freshly installed as Britain’s chancellor of the exchequer, announced that he was giving the Bank of England the responsibility for setting interest rates. The bank would be charged with meeting an inflation target set by the government.The move was hailed as a political masterstroke. It gave substance to the new Labour government’s claims to economic competence. Long-term borrowing costs fell sharply. The pound soared. The bank’s governor, Eddie George, was delighted. But joy was not unconfined. Within weeks Mr Brown, wary of an over-mighty central bank, stripped it of its responsibilities for bank regulation and public-debt management.