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Inside politics

Don’t just blame the Chancellor

The Bank of England, Threadneedle Street. Getty

I wonder how future historians will remember the “fiasco of 2022”, says Iain Martin in The Times. Perhaps as “the year of the four chancellors”. It may turn out to be the “the year of three prime ministers too”. One person who doesn’t seem to be on the chopping block is Andrew Bailey, governor of the Bank of England. Any chancellor who tried to sack Bailey would be “eviscerated” by investors, who see him as the last line of defence against any more “Westminster craziness”.

This is ridiculous. The seriousness of this crisis is down, in part, to “poor decision-making on Threadneedle Street”. Bailey was too slow to act on inflation, and his interest rate rises, when they finally came, were too small. Instead of giving UK pension funds the unambiguous message that “the era of cheap money was over”, Bailey’s half measures hinted that the adjustment would be gradual. He also failed to notice an obscure but now-infamous bit of financial jiggery-pokery deep in the plumbing of the pension system, called LDI (liability-driven investment). It was a malfunction in these complex derivatives – regulated by the Bank – that meant Bailey had to spend billions propping up the pension funds. Yes, it was Kwarteng who started the fire, but the Bank looked on approvingly at the LDI farce as pension managers “built a pyre and covered it in petrol”.