Of all Labour's measures since 1997, its shake-up of the Bank of England within days of winning power was the most talismanic. Making the central bank independent to set interest rates said more loudly than any rhetoric that the party had changed its ways. And the reform appeared to be a masterstroke. For virtually all the ensuing decade, the economy thrived, inflation stayed low and banks were accident-free. But as Britain's financial system and economy have stumbled, Labour has become less enamoured of its creation; and the public has lost faith in both the politicians and the central bank.rnRelations between the government and the Bank of England soured in the first place because the reform of 1997 failed its first serious financial test. Although the central bank gained the power to determine interest rates, it lost its supervisory powers over banks to the new Financial Services Authority (fsa). This divided arrangement, in which the central bank was still supposed to ensure financial stability, worked woefully when Northern Rock ran aground last year. The fsa proved a careless and supine supervisor and the Bank of England tardy and flat-footed when financial markets seized up.
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