The trouble with the bank acting tough to shore up its reputation is that the Treasury is engaged in a similar exercise. Mr Osborne believes that Britain's reputation for fiscal prudence depends on cutting public spending aggressively. His hope was that the bank could insure against the perils of his fiscal tightening by keeping monetary policy very loose, or even loosening it further. There is now some fear of a “credibility race” between the central bank and the Treasury, resulting in an economic policy vice that strangles the recovery.
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