UK investors are unlikely to take fright if former Goldman Sachs banker Rishi Sunak becomes Britain’s next prime minister, but they could be forgiven for worrying about the prospect of Liz Truss taking over the top job.
Truss, the current favourite, has criticised the performance of the Bank of England, saying the government should “look again” at the BoE’s mandate to “make sure it is tough enough on inflation”. It was important to look at what is “best practice around the world”, she said, citing the Bank of Japan in this regard.
The idea the UK government might encroach on the bank’s independence would alarm investors.
It certainly alarmed Citigroup chief economist Ben Nabarro, who bluntly warned her “unseemly combination of pro-cyclical tax cuts and institutional disruption” posed serious economic risks.
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Indeed, the idea of political interference coming from someone who thinks the Bank of Japan is a model to follow is especially troubling, given Japan has been trying, and failing, to raise inflation for decades. As Bloomberg’s John Authers put it, Truss’s “terrifying” words suggest someone with “weirdly confused ideas about basic economics”.
