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Andrew Bailey is leading the Bank of England into one of its most complex challenges in decades while facing criticism of his record in a key part of the job - how to explain his thinking and that of the central bank.

Bailey marks two years as governor on Wednesday after succeeding Mark Carney in March 2020, just as the world’s fifth-biggest economy was sliding into its historic COVID-19 slump.

The BoE cut interest rates a few days before Carney left and did so again four days after Bailey took over. It also expanded its bond-buying scheme by 200 billion pounds ($260 billion).

The swift response helped settle near-panic in financial markets and earned the BoE plaudits.

But since then Bailey has drawn criticism from investors, trade unions and by some people who have worked with him.

The International Monetary Fund said in late February that “predictability and clear communications about forward guidance would improve policy effectiveness” by the BoE.

Also last month, Bailey angered unions and was rebuffed by Prime Minister Boris Johnson’s spokesman when he called for pay restraint in the face of fast-rising inflation.

Other BoE policymakers tried to shift the focus to pricing decisions by companies but Bailey hit the headlines again when he struggled to answer a question about his own pay - 575,000 pounds including pension contribution - from a lawmaker.

It was not the first messaging problem for Bailey, whose career has mostly been as a financial regulator.

Late last year, many investors thought comments he made meant the BoE was poised to tighten monetary policy. Goldman Sachs and other banks predicted a first rate hike in November.

When the Monetary Policy Committee kept rates on hold, British government bond prices jumped by the most since the 2016 Brexit shock. Sterling fell by the most in over 18 months.

Many investors were also caught out when the BoE did start to raise rates in December.

“He has shown a lack of appreciation for the impact that his comments can make in the markets,” Oliver Blackbourn, portfolio manager on a UK-based multi-asset team at Janus Henderson Investors, said.

“There is a really fine line in the way central banks communicate. I think that they have completely misjudged that at times.”

Market forecasts for UK interest rates to peak in 18-24 months’ time reflected worries about the BoE managing to control inflation without starting a recession, Blackbourn said.

Britain faces a severe cost-of-living squeeze as inflation looks set to rise above 8% - four times the BoE’s target - as the fallout from Russia’s invasion of Ukraine adds to a surge in energy prices and COVID-19 supply-chain bottlenecks.

The BoE is expected on Thursday to announce a third interest rate since December.

The BoE’s press office declined to comment when contacted by Reuters for this story.

Bailey has defended his comments in the run-up to November’s policy decision, saying he never pre-committed to any move.

Bailey’s messaging problems began in 2020 when he said the BoE’s bond-buying, as well as helping to get inflation back up to target, would smooth the government’s borrowing needs.

Some commentators said that blurred the BoE’s independence.

Other top BoE policymakers then stressed that the bond-buying was increased purely to meet the inflation target.

But last July, the Economic Affairs Committee in the upper house of Britain’s parliament said Bailey’s comments were likely to have added to the perception that the jump in bond-buying was at least partially motivated to help finance the government.

“If this perception continues to spread, the Bank of England’s ability to control inflation and maintain financial stability could be undermined significantly,” the committee said in a report.

People who have worked with Bailey at the BoE said he sometimes made unprepared comments, in contrast to Carney who rehearsed more before speaking in parliament and to the media.

Carney had his own messaging problems, chiefly the way his trademark “forward guidance” about the likely path of interest rates on occasions was overtaken by shifts in the economy.

But the Canadian was so focused on the details that his aides made sure he knew the price of milk and bread in case he was asked, a level of preparation that Bailey does not follow, a senior BoE official said.

Bailey is not the only top finance official who has struggled to communicate.

The leaders of central banks including the U.S. Federal Reserve have had to backtrack on their view that the jump in inflation was probably transitory.

Investors have also been wrong-footed by European Central Bank President Christine Lagarde’s attempts to finesse divisions within the ECB.

But a person familiar with debates inside the BoE said Bailey could be stubborn about sticking to his own view, even when colleagues more experienced than him on macroeconomic policy issues tried to change his mind.

Such differences included Bailey’s linking of bond purchases to the government’s fiscal policy in 2020 and publicly voicing concern about the size of the central bank’s debt stockpile, something colleagues warned could add to the perception that the BoE’s independence was being weakened, the person said.

Another BoE official defended Bailey, saying he prepared extensively for all his duties and that he spent no less time getting ready for public events than any previous governor.

Bailey liked to provide direct answers to direct answers and also made plenty of time available to talk to colleagues and staff, that official said.

The communications challenge for Bailey is only likely to grow in his third year as governor as inflation and recession risks mount.

“Looking forward, given the way markets are worried about policy mistakes and the way inflation and growth outlooks are evolving, investors could really do with a steadier hand on the tiller from here,” Blackbourn of Janus Henderson said.—Reuters

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