Handling international political risk in a time of uncertainty

Reported by Rebecca Van Hove

Handling international political risk in a time of uncertainty

Last month Policy Fellows met at the Cabinet Office for a discussion on how to deal with political risk, led by CSaP Policy Fellows at the Bank of England, Seth Thomas (Senior Adviser in International Policy & Strategy) and Jeremy Martin (Senior Advisor on International Economics).

Seth and Jeremy set out why and how the Bank of England incorporates international political risk analysis into its work and argued for the importance of horizon-scanning in both the economics and policy worlds. Attended by Policy Fellows from both inside and outside government, discussion focused on how horizon-scanning and political risk analysis can inform policy making for a wide range of fields and topics.

Seth and Jeremy explained why international risk assessment is important for the Bank of England, setting out how its mission involves assessing both politically-led international events which affect the economy, and international economic issues which have a political impact.

The Bank’s international work has developed since the 2009 financial crisis, with Governor Mark Carney having just stepped down as Chair of the G20’s Financial Stability Board, and work with international stakeholders growing in importance. As such, the Bank has needed to think more deeply about political factors in its international analysis and engagement. The cross-overs between macro-economics, financial stability and politics have an impact on the Bank’s international work.

Setting out this framework for political risk analysis, Seth and Jeremy then demonstrated how the Bank goes about covering this. It has set up a function which makes use of both a Bank-wide network and external sources to integrate political risk into the work of the Bank’s analysts – its aim is not to create a stand-alone ‘think tank’ but rather to provide the capability to assess relevant international political risks. Additionally, Jeremy discussed how scenario analysis can assist in understanding and analysing potential political risks: examining the probability of scenarios can help the development of policy recommendations which support the Bank’s mission.

The discussion which followed focused on topics such as the nature of horizon-scanning, and how to communicate complex risk assessment information to both decision-makers and a public audience alike.