Independence day: why Gordon Brown gave the Bank the right to set interest rates

theguardian.com:

Gordon Brown had a surprise in store for Eddie George when he summoned the then governor of the Bank of England to a meeting at 11 Downing Street on bank holiday Monday, 25 years ago this week.

For the past two years, Labour’s new chancellor had been working on a plan to give Threadneedle Street the right to set interest rates and now he was ready to tell George about it. Secrecy was complete. The first the City heard of the idea that henceforth it would be the Bank’s job to hit the government’s inflation target, was when it was announced 24 hours later.

Accompanying George was his private secretary Andrew Bailey, since elevated to the governor’s office himself. Bailey was there to see George’s surprise at Brown’s news – but now he has to steer the Bank through its trickiest time since independence. The annual inflation rate is 7% – its highest in three decades – and is set to move even further away from the official 2% target. The City expects the Bank to raise borrowing costs to 1% on Thursday – the fourth time in a row it has raised rates.

Speaking before the quiet period when the Bank avoids public pronouncements about the looming interest rate decision, Bailey said nobody at Threadneedle Street had seen Brown’s independence announcement coming.

“It had, of course, been mused on as a concept for some years – but the idea that the New Labour government would implement it, immediately surprised almost everyone, I think,” he said.

Bailey recalled Brown producing a letter outlining his plans. “Eddie, of course, was very supportive of the decision – and the famous letter now sits in the Bank of England’s museum. Though I confess it is not in mint condition, as for a number of weeks after Gordon handed it over, it went around