15 July 2025: The Bank of England’s independence is also under fire

Central Bank independence is a topic across the developed world as politicians try to wrest control of monetary policy from unelected officials who they feel face no jeopardy attached to their decision-making.

Donald Trump’s abysmally poor treatment of Federal Reserve Chairman Jerome Powell is well-documented. Still, the relationship between Rachel Reeves’ Treasury Team and Andrew Bailey is only marginally better, although Reeves and Bailey are at least civil towards one another.

The relationship between Andrew Bailey and Reform Deputy Leader Richard Tice has deteriorated since Tice called for the Bank to stop paying interest on short-term deposits placed with it by UK banks.

Tice believes that the economy could benefit to the tune of several billion pounds from the scheme, a figure Bailey hotly disputes.

The Oversight provided by Bailey’s regular testimonies before the Treasury Select Committee is, in Tice’s opinion, little more than a get-together of an “old boys club”.

He wants the Decisions made by the Monetary Policy Committee to have meaning as far as the committee’s members are concerned. He feels that the permanent members simply vote following Bailey’s instructions. In contrast, the independent members are prone to testing their theories about the effect on the economy of a tightening or loosening of monetary policy, treating the economy as some giant theoretical exercise.

The Bank was granted its independence by then-Chancellor Gordon Brown in 1993, and by and large, it has been a successful transformation.

There have been attempts to change the MPC’s format, where there are nine members, five permanent and four independent, but there has been little progress on improvements.

From farms to the high street, businesses across the UK are feeling the strain as record heat disrupts productivity, slashes sales, and increases costs. For many smaller operators, the summer sun is no longer a seasonal boost; it’s becoming a growing threat to survival.

The impact extends to the rural economy and reaches well beyond the fields. Lower yields mean fewer baling jobs for contractors, reduced revenue, and mounting pressure on fixed costs. The impact across the wider economy can be quite profound. Figures from the Office for National Statistics suggest hot days cost the UK economy £1.2 billion a year in lost productivity, mainly because Britain’s infrastructure and workforce are not equipped to cope with extreme heat.

“Our homes are not designed for heat. Our transport infrastructure isn’t either,” says Professor Elizabeth Robinson from the London School of Economics. “So it’s harder to get to work, and it’s harder to function when you’re at work.”

Melted tarmac, bent rail tracks, and signal failures are becoming increasingly common. London Underground temperatures regularly exceed street level by 5°C, while July 2022’s 40°C heat saw footfall in UK city centres fall by 25% in just one month.

High temperatures are deterring shoppers from the high street. According to the British Retail Consortium, visits to UK shops fell 1.8% last month, while overall footfall dropped 3% in June compared to the previous year.

The sunny spell has dented sales at household names. Greggs recently issued a profit warning, citing weaker demand for baked goods during hot weather. Its share price dropped 15%. Footwear brand Dr Martens similarly blamed warm temperatures for disappointing sales.

But while large retailers can absorb seasonal swings, small businesses are far more exposed.

Markets and pop-ups are struggling to break even, and turnover is down 30%. Small businesses have cut staff hours wherever they can. It is an issue that is escalating almost year by year.

Lost further ground yesterday as the chances of a rate cut in August have increased. It fell to a low of 1.3424 yesterday and closed at 1.3427.

Any excuse! Donald Trump is determined to get a rate cut in the U.S., even if his motives are dubious at best. His attacks on Fed Chair Jerome Powell are excruciating, belonging more in the schoolyard than in the corridors of the most powerful nation on earth.

Economists mostly agree, at least those who are not “sucking up” to the President, that a rate cut could add fuel to the inflationary fire, which, while not exactly burning bright, has not yet been fully extinguished.

Powell is bearing the brunt of the criticism. He has recently faced criticism for a two-and-a-half billion dollar renovation of the Fed’s headquarters building in Washington, although his part in the plans was minimal at best.

Powell has reportedly asked the central bank’s inspector general to review its $2.5 billion headquarters renovation, a project that has become a key focus of escalating attacks from the Trump administration.

The Administration has zeroed in on the lavish renovation project, and accusations that Powell lied to a Senate committee about the fancy amenities that are being planned, as part of a broader campaign to pressure Powell, who has consistently rebuffed President Donald Trump’s demands to cut interest rates.

Powell’s public persona is not one given to any lavish embellishments to the functionality of the Central Bank’s premises, but he continues to act stoically, as the minutiae of his performance are analysed.

It is a little ironic that the Fed Chair does not stand alone in his refusal to ease monetary policy.

At the weekend, Austan Goolsbee, the President of the Chicago Federal Reserve, said that he would be uncomfortable with a rate cut while there is so much uncertainty and anxiety surrounding the President’s trade policies. While Beth Hammack, the Cleveland Fed President, told reporters yesterday that she wants to see inflation falling significantly before she casts her vote in favour of a cut.

The U.S. economy remains resilient despite headline volatility tied to shifting trade and tariff policies. There is a significant degree of volatility in the economic data as the world adjusts to these changing policies.

For example, following a 0.5% contraction in real GDP in the first quarter, second quarter GDP is tracking at a strong 2.6% annualised rate according to the Atlanta Fed’s GDPNow measure.

The dollar is definitely showing signs of life as President Trump moves further away from the blanket application of tariffs on America’s trading partners. While his motives are still not confirmed, the fog is clearing around the actual targets of his actions, which have been well camouflaged to anyone other than an extreme cynic.

The dollar index rallied again yesterday to a high of 98.14 and closed at 98.12.

In their latest Monthly Report, Bundesbank economists explained how significant market share losses for the German export industry have accompanied the weak performance of German exports in recent years.

German export market shares have been contracting since 2017, and especially since 2021. As a result, the losses in market share have contributed significantly to the sluggish growth of the German economy, they continued.

More than three-quarters of the losses in export market shares between 2021 and 2023 were due to a deterioration in the competitiveness of German exporters concerning specific product groups.

Competitiveness declined in many sectors. This points to fundamental structural problems in the German economy that have weighed on many firms.

These problems include demographic change, the shortage of skilled workers and rising unit labour costs, as well as an increasing amount of red tape. The heavy machinery industry, electrical businesses and energy-intensive sectors such as the chemical industry were the biggest contributors to the drop in competitiveness.

The global COVID-19 pandemic and Russia’s war of aggression against Ukraine disrupted supply chains and caused energy prices to rise, with the latter putting an additional strain on exports by Germany’s energy-intensive economic sectors:

Overall, the findings point to the existence of supply-side problems in the German economy.

Germany has lost its competitive edge within the Eurozone. Other members of the Economic Community, such as France, Spain and Italy, the next three largest economies have been relatively stable, losing only small amounts of competitiveness due in no small part to the strength of the Euro, but Germany has fallen back into the pack rather than being caught up by the rest.

The French Prime Minister has called upon the ECB to do more to promote growth in the region now that it appears to have been triumphant in its battle with inflation.

François Bayrou believes that more should be done to “dampen down the strength of the Euro, which, along with the threat of increased tariffs on exports to the U.S., has seen the country’s economy flat line for the entire first half of the year.

The French economy grew by around 0.1% in the second quarter, the Bank of France said in its monthly economic outlook. Its economy faces headwinds both at home and abroad, with the region needing to present a united front to the U.S. President and not try to make a series of side deals which may prove to be to the detriment of the region as a whole.

The Euro is gradually declining in value. It is not making any large, statement moves, but investors appear to be divesting themselves of positions that have been built over the past few months.

It fell to a low of 1.1654 yesterday and closed at 1.1665.

Have a great day!