Populism poses serious challenge to independent central banks, Bailey says

Bank of England Governor Andrew Bailey warned that the surge of populist politics threatens the legitimacy of independent central banks, urging policymakers to openly justify their actions or risk being dismissed as an “unrepresentative elite.” Speaking at a London School of Economics conference attended by Reform UK’s Nigel Farage and other populist figures, Bailey stressed that central banks must not assume their authority is self‑evident. He warned that parties like Reform UK claim to embody the “authentic will of the people,” casting any institution that impedes their agenda as an obstacle to popular sovereignty, a narrative that could undermine the Bank’s independence.

Bailey contextualised the challenge by recalling the Bank’s evolution since its 1997 independence, when the Labour government transferred interest‑rate decisions from the chancellor to a nine‑member Monetary Policy Committee (MPC) chaired by the governor. After the 2008 financial crisis, the Bank also assumed responsibility for financial stability, a move he said has enhanced its ability to sustain “the monetary and financial conditions that make sustained prosperity possible.” He noted that scrutiny of powerful institutions is a sign of democratic health, but cautioned that populist attacks—mirroring those of former U.S. President Donald Trump against Federal Reserve Chair Jerome Powell—can erode public confidence and fuel calls for political replacement, as Farage has hinted he would do if Reform wins power.

The governor’s remarks came as the MPC remains divided over how to tackle inflation sparked by the Iran war, with the July meeting leaving rates unchanged at 3.75% despite three members, including chief economist Huw Pill, urging a hike. Bailey highlighted that a weak labour market has so far prevented “second‑round effects” that could embed price rises. He also signalled that the Bank’s controversial quantitative‑tightening programme—selling bonds bought under emergency quantitative easing—will be reviewed at the September 17 policy meeting, a move criticised by Reform and left‑wing think‑tanks for potentially raising government borrowing costs amid volatile bond markets. Bailey is set to face the cross‑party Treasury select committee next week, where he will be required to explain the Bank’s strategy and defend its independence against mounting populist pressure.

⚡ Effects Interpreter