Bank of England operations could leave London under Labour government

Parts of the Bank of England could move to the city of Birmingham under a Labour government, following proposals set out in a report commissioned by the UK’s official opposition party.

The recommendations include moving “some” BoE functions away from London, to sit alongside a “National Investment Bank” and a “Strategic Investment Board” in Birmingham, the UK’s second most populous city. The three institutions would be tasked with funnelling investment towards the UK’s smaller and more productive businesses.

The report, published today (December 11), also proposes reviewing the BoE’s mandate, arguing “one indicator alone” – inflation – “does not capture the complexity of a modern, dynamic, 21^st century economy”.

The independent research is authored by consultants GFC Economics and Clearpoint Corporation Management, and as such does not reflect the official Labour party line. However, shadow chancellor John McDonnell told the Financial Times it was an “important report”, which “drums home the message that our financial system isn’t delivering enough investment across the whole country”.

The Labour party has in the past mooted changes to the BoE’s operations, stoking controversy in 2015 with proposals for “people’s quantitative easing”, which would require the central bank to finance a new National Investment Bank via money creation.

Today’s report envisages creating a network of BoE satellite offices, in addition to those in Birmingham and London, that would be charged with ensuring lending is “geared towards the needs of local businesses”.

The report argues the BoE should devote more effort to strengthening the links between the financial sector and real economy. It is critical of the bank’s financial policy committee, which it says is failing to fully promote the resilience of the economy. “[The committee] is ignoring investment, which plays a critical role in preventing systemic risks,” it says.

Mandate change

To strengthen the BoE’s new focus on investment, the report argues the central bank’s mandate should be changed. “The singular focus on an inflation target may be out of date,” it says.

“Indeed, the biggest challenge facing the UK economy over the coming years is the prospect of technology-led disruption putting downward pressure on wages,” the report continues. “By failing to pay sufficient attention to technology, the monetary policy committee has consistently overestimated how quickly wages would rise.”

The report suggests “other variables” could be added to the mandate, including wages, productivity and investment. It does not discuss the impact this might have on inflation or other aspects of the economy.