Ignoring market expectations on rate cuts would be Bailey’s final straw

It may, perhaps, seem odd that the Bank of England’s decision on interest rates should be effectively made by the market. But that is the case over the coming ten weeks, through the May and June rate decision. To fail to meet market expectations would, now, represent the final nail in the credibility of Andrew Bailey’s governorship.

This newspaper had little truck with the Bank of England’s monetary policy committee’s dawdling at the beginning of this current inflationary cycle, with delay and dither made all the worse by the fact the Bank’s ratesetters seemed dead-set on ignoring the advice of Andy Haldane, both whilst he was still in the building and after he had left. Combine that with a horribly botched communications strategy, in which Bailey marched markets up the hill on more than one occasion only to surprise them with a sudden order back down, and the mismanagement was apparent.

Bailey then, already losing friends in the Square Mile, committed a series of avoidable gaffes which gave the general impression the then-Chancellor, Sajid Javid, had erred in the appointment. Bailey told Brits not to ask for pay rises; signed off on a sizable bonus pool at the Bank, and most famously insisted that inflation was “transitory” long after it had become apparent that this wave was here in the long-term.

It is not his fault that the Bank’s economic forecasts turned out to be utterly risible, but it is nonetheless the case that the buck stops with him on that front, too. All of this has come with a high-handedness and defensiveness in public grillings which does him no credit – and we can add to this charge sheet that he had to spend at least one afternoon as Governor apologising for failings in his previous role at the FCA over the minibond scandal.

With markets all but certain of a May or more likely June rate cut, only the most impressive central banker would have the skill to tread a different path. It is not obvious that Bailey fits in that category.