Former British Prime Minister Gordon Brown, the man who gave the Bank of England the independence to set interest rates when he was finance chief, is calling for the creation of a new joint oversight group between the government and the bank to assess economic risks.
In an event Thursday to mark the 20-year anniversary of the central bank's independence, Brown said there's a disconnect between the two main economic policymaking arms in Britain that can end up hobbling the economy.
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"We are asking too much from the bank," he said. "I believe it is wrong not to have a joint Treasury/Bank of England strategic oversight group."
Brown, who was finance chief for ten years until 2007 before becoming became prime minister, said there is no way a crisis can be dealt with unless the Bank of England and the Treasury are "working together."
He highlighted the housing market which could cause a financial crisis, or at the very least financial problems. The central bank cannot manage the sector because its mandate is to control inflation, leaving the government with the responsibility to handle its stability.
He said it's important that everybody knows what everyone is doing.
"I don't think the problem is overlap, I sometimes think the problem is underlap, that some issues are not going to be addressed unless there is a joint Treasury/Bank oversight," he said.
Brown also suggested that the Financial Policy Committee, which assesses financial risks on behalf of the Bank of England, should start using an "open letter system" to alert the government on potential problems, like excessive household debt. The Bank of England already operates such a system when inflation is more than one percentage point above or below the 2 percent target.
The Bank of England's current governor, Mark Carney, opened the two-day event by telling an audience including Prime Minister Theresa May that monetary policy "cannot prevent the weaker real income growth likely to accompany" Britain's exit from the European Union. All it can do is "influence how this hit to incomes is distributed between job losses and price rises."
In the wake of the June 2016 Brexit vote, the Bank of England cut its main interest rate to a record low of 0.25 percent to shore up confidence in the economy. It's now under pressure to raise rates given that inflation is at an annual rate of 2.9 percent.
Though Carney has indicated rates could rise as soon as November, he stressed Thursday that the bank can in some circumstances give itself more time to bring inflation back to target.
"While the inflation target applies at all times, the remit has always acknowledged that inflation may deviate temporarily from the target on account of shocks. Since 2013, it has explicitly recognized that in exceptional circumstances, bringing inflation back to target too rapidly could cause undesirable volatility in output and employment," Carney said.