Mervyn King, the Governor of the Bank of England, did not tell members of the interest rate-setting body about £62 billion of secret loans granted to HBOS and Royal Bank of Scotland, it has emerged.
David Blanchflower, a former member of the bank’s Monetary Policy Committee (MPC), has hit out at Mr King, criticising the Governor for not telling the interest rate-setting panel about the loan, even though it would have been a key factor in the decision on rates.
In today’s New Statesman, Mr Blanchflower, who sat on the MPC at the time of the loan, writes: “Despite being an external member of the MPC at the time, nobody told me about these loans or how bad things were in the financial markets. The announcement by the Governor in his Treasury select committee appearance last week was the first I had ever heard of these loans.
“We were also kept in the dark about what was happening with Northern Rock. Nobody briefed me, even ex-post. The extent to which the external members of the MPC were excluded from basic information on the crisis is only now coming out.”
Mr Blanchflower added that he understood why the information was kept from the public, but not from the MPC.
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“Surely such information was relevant to our interest rate setting decisions? If we had been told what was going on we many have started quantitative easing sooner and cut rates faster.
“There is no point in having an MPC unless members, and not just some, are given vital information.”
The former MPC member, who consistently led calls for interest rate cuts in 2008, also writes that the financial crisis is not over, urging the Chancellor to unveil more measures to stimulate the economy in next week’s Pre-Budget Report.
This is not the first time that Mr Blanchflower has hit out at Mr King. In September, Mr Blanchflower launched a savage attack on the Governor, accusing him of failing to spot and react quickly enough to the looming recession.
In the outburst, which breached the age-old protocol which ensures that the wranglings and discussions of the panel remain secret, Mr Blanchflower accused Mr King of bullying and encouraging “group think” instead of independent thought among the Bank’s rate-setting panel.
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Also writing in the New Statesman, Mr Blanchflower said: “Governor Mervyn King, the old iron fist of the Bank of England, with his hawkish views on rates, dominated the MPC. Short shrift was given to the alternative, dovish views such as mine
“Clever as Mervyn King may be, he missed the crash and the subsequent recession, and hence, so did the consensual MPC on which I sat.”
The usually guarded Mr King responded by saying that it was “not sensible” to make comments such as Mr Blanchflower’s.
Speaking to the Treasury Select Committee, Mr King said that Mr Blanchflower’s account did not coincide with his own recollection.
“[Blanchflower] has chosen to make a statement of this kind, and he is entitled to do this,” Mr King said. “I think it was unwise and not sensible for someone on the committee to do that.”