The Road to 1997: Bank of England Operational Independence in Historical Perspective

Dr Chetun Patel’s PhD thesis present work sets out the ‘road to 1997’ by identifying three main factors (political, economic and institutional) that have shaped the monetary framework since the formal adoption of the classical gold standard in the nineteenth century. Isolating these influences helps historians understand the importance of operational independence and how novel and influential the change in the institutional landscape was.

This thesis answers the why, what and how of the 1997 decision: why New Labour pursued a new monetary framework, what persuaded them to grant the Bank of England independence, and how the model was sustained. It concludes that the country took a direction that was far more radical than previously assumed, signalling a fresh start for the modernising New Labour Party. Specifically, the unique British model of Bank independence delivered an innovative structural institutional change that empowered Her Majesty’s Treasury by transferring power and weakening the Bank’s traditional hierarchy through a repurposing and restructuring process. This thesis also explains why the Conservatives did not deliver Bank independence and how it proved to be a robust model.

Furthermore, this research uncovers the extent of the role played by Treasury officials in delivering inflation targeting in the mid-1990s. It also provides a fresh perspective from those closest to the delivery process, explaining why the Treasury was able to make operational independence workable over the first weekend of the New Labour Government. In examining the new committee structure, a unique qualitative perspective of the early years of the MPC highlights the improved quality in the decision-making process.

This thesis examines the granting of operational independence to the Bank of England’s Monetary Policy Committee (MPC) in 1997. Its delivery is detailed within the wider historical context of Britain’s search for a stable monetary framework.