Epistemic Communities and the Diffusion of Ideas: Central Bank Reform in the United Kingdom

In May 1997 the incoming Labour government gave the Bank of England operational independence in the setting of interest rates. This reform is puzzling as it was introduced by a party whose roots lie with the trade union movement, and resisted by the Conservatives whose political support comes largely from business, the financial sector and homeowners who stand to benefit most from price stability. Economic ideas are central to explaining the outcome. The Labour Chancellor was convinced by an epistemic community of monetary experts that central bank independence would achieve New Labour's electoral goals. These political incentives were absent for the Conservatives, who preferred to set interest rates strategically to increase their popularity with voters.