Inter-Organisational Distrust and the Political Economy of Central Bank Independence in the UK

This article revisits a puzzle: why did the Conservative Governments of Margaret Thatcher and John Major not grant independence to the Bank of England? A substantial literature offers several explanations for why New Labour carried out this reform to UK monetary policy, many of which ought to have been relevant to the Conservatives’ stewardship of the economy in the 1980s and 1990s. So why did the Conservatives fail to see the advantages of a policy that the Blair Government seized on as one of its first acts of office? Combining new archival research with elite interviews of some key participants during this period, this article re-examines this neglected question. It argues that one overlooked reason why the Conservatives decided against granting independence to the Bank of England relates to the role and importance of inter-organisational distrust. Conservative leaders (and Treasury officials) had negative expectations about the Bank’s ability to implement monetary policy and did not want to increase their dependence on that institution to fulfil a function deemed crucial to their political fortunes.