COLUMN-BoE being goaded into 'scorched earth' policy :Mike Dolan

By Mike Dolan

LONDON, Aug 5 (Reuters) - Torn between inflation and recession, the Bank of England is being pushed hard by a UK government-in-flux into a scorched earth monetary policy now and possibly an equally dramatic and unnerving U-turn next year.

Foreign Minister Liz Truss, overwhelming favourite to replace Boris Johnson as Prime Minister next month, plans looser fiscal policy via largely unfunded tax cuts in an emergency budget - a plan many fear could force the central bank into an overburdened solo effort to rein in raging prices as the economy heads into a long recession.

As if to reinforce that point, Truss' campaign team openly complains the Bank was too slow in tackling inflation last year and insists on a review the central bank's 25-year-old operational independence by way of censure.

The irony of this threat to BoE independence is that it goads the bank to tighten even more aggressively now to sate public anger over higher bills and allow room for quick tax cuts - contrasting with a perennial fear that government interference in central banking typically tries to engineer cheaper credit.

But many feel that political pressure to tighten harder now could quickly flip-flop next year too - creating the sort of macro policy volatility investors may balk at.

In a report entitled Nightmare on Threadneedle Street, Rabobank's Stefan Koopman reckons fiscal easing implied by Trussonomics will reinforce expectations for another 100 basis points of BoE rate rises by year end.