The governor of the Bank of England has urged the world’s leading global institutions to fight back against the rise of populism, warning that it represents one of the biggest threats to improvements in living standards.
In a thinly veiled response to Donald Trump’s attempts to interfere with the independence of the US Federal Reserve, Andrew Bailey said that he and the heads of other institutions had a duty to “challenge back” populist narratives.
“Part of the purpose of international agencies is that from time to time they have to tell us what we don’t want to hear, let alone act upon,” he said. “Of course, they have to be accountable for the accuracy and quality of the assessment. But, accepting that, we have to call out messenger shooting.”
Bailey was among a group of 10 central bank governors – including the chair of the European Central Bank, Christine Lagarde – who this week offered “full solidarity” to the Federal Reserve chair, Jerome Powell, after he revealed he had been threatened with legal action.
His comments also come amid rising geopolitical tensions and growing criticism of Trump after the US intervention in Venezuela and the president’s threats to take control of Greenland.
In a speech delivered as world leaders prepare to head to Switzerland for the annual World Economic Forum meeting in Davos – widely seen as a critical moment for the future of international cooperation – the governor said countries turning inwards would undermine progress to raise living standards. “The rise of so-called populism makes the whole task harder,” he said.
Economists and the chief executive of JP Morgan Chase, Jamie Dimon, have warned that politically driven attempts to influence the Fed and other leading central banks could ultimately push up inflation and interest rates, adding to cost of living pressures on households.
Bailey identified three defining features of populism: a tendency towards domestic production over international openness; attributing unfavourable conditions to “outside forces”; and fuelling decline in trust in domestic and international institutions.
He said this included a populist tendency to deride domestic and international institutions as “distant, unresponsive and acting for the benefit of powerful and uncontrollable interests”.
“For those of us who are institutionalised, the answer is that we have to challenge back, in deeds more than just words. But, we have to ensure our houses are in order too,” he said.
The governor has previously faced criticism from Nigel Farage, the leader of the rightwing populist Reform UK party. Farage has called for politicians to have greater influence on the Bank of England, which was made independent in 1997 by the then Labour chancellor, Gordon Brown.
Late last year, Farage suggested he could replace Bailey as governor if he became prime minister. He has also called Bailey a “dinosaur” over his views on digital currencies.
Liz Truss, the former prime minister, has also complained about UK institutions including the Bank, Treasury and the Office for Budget Responsibility, accusing them of being part of a shadowy “deep state” apparatus.
Bailey said the gains of global cooperation were clear. “The benefits of trade and openness in terms of specialisation and larger markets are very well known. So, too, is the need to have rules of the game and some form of commitment and coordination device to put these rules into effect and protect legitimate national interests,” he said.
Economists typically view free trade as a cornerstone of long-term economic growth, arguing that it helps lower prices for consumers and supports productivity gains.
However, the governor of the UK central bank, who also chairs the international Financial Stability Board – acknowledged that years of lacklustre economic growth and stalling progress living standards had made promoting global openness harder.
“While it is true that openness supports growth and has reduced global poverty, it can have, and has had, distributional consequences in economies, and there has been an undermining of social capital so-called and domestic cohesion,” Bailey said.
He added that the challenges facing the world could not be overcome through increasingly isolationist policies.
Bailey said there were four substantial headwinds facing rich countries: a pause between productivity-enhancing technologies that was holding back economic growth; ageing populations; rising demands for defence spending; and the climate crisis.
While describing these pressures as a “powerful force to complicate the operation of the international system”, he argued that countries could overcome them through “robust economic openness” and greater global trade and cooperation.
“We must be clear and agreed that a world without effective institutions is unlikely to be stable,” he added.
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