Burnham camp eyes Bank of England mandate and QT shake-up

Andy Burnham’s leadership team is laying the groundwork to overhaul the Bank of England’s mandate. The move signals a potential end to three decades of strict inflation-only targeting under the central bank's operational independence.

The push, spearheaded by key Burnham ally Louise Haigh, is driven by the economic damage caused by fighting supply-side inflation with high interest rates. Repeated shocks from the pandemic, the war in Ukraine, and recent Middle East conflicts have left businesses and consumers paying the price for elevated borrowing costs.

For markets, the most immediate focus is likely to be quantitative tightening. The Bank is gradually selling off its £875bn bond portfolio, a policy that the Office for Budget Responsibility estimates adds £6bn to the annual deficit through government indemnities while pushing up sovereign borrowing costs. The MPC is due to review the programme this autumn.

This QT strategy already diverges from the approaches taken by the US Federal Reserve and the European Central Bank. A new chancellor—widely tipped to be Shabana Mahmood—could intervene in this review, particularly since critics ranging from left-leaning economists to Reform’s Richard Tice argue the policy is actively harming the public finances.

Beyond bond sales, Burnham’s team is examining broader structural reforms. Options include a US-style dual mandate that explicitly factors in economic growth, or "adaptive inflation targeting" that would temporarily tolerate higher prices during climate-driven supply shocks.

Economists are also pushing for a formal Treasury-Bank committee to better coordinate fiscal policy with interest rate decisions. As Professor Jo Michell noted: “We’ve got to think of an institutional framework which is viable, isn’t too much of a big jump, doesn’t unsettle the markets – but does allow some form of coordination.”

Any changes will be carefully weighed against the risk of spooking investors. The 1997 grant of operational independence remains a cornerstone of UK economic credibility. However, as MPC member Swati Dhingra recently warned, keeping rates high to fight external shocks also strangles the investment needed for the net-zero transition.

A mandate review would ultimately allow a Burnham administration to signal a distinct economic approach. It would prioritise growth and resilience over a rigid adherence to the current 2% inflation target.