We've learned that, in anything other than the short term, there really is no trade-off between growth and inflation. So the real aim of monetary policy these days is to achieve stability across the economy as a whole in this much wider sense. Now, there is not a lot, frankly, that we can do, directly through monetary policy, to affect the supply side of the economy - the underlying rate of growth that can be sustained without causing inflation to rise. That depends ultimately on the ingenuity, the productivity, and the flexibility, of the economy, though it can, of course, be influenced by the whole raft of Government policies, ranging from education and health, through taxation and social security, to the balance between regulation in all its forms, including regulation of the labour market, and productive efficiency. Like the setting of the objective of monetary policy, these are, of course, quite rightly, matters for elected politicians.
Monetary policy operates on the demand side.
That way we can moderate rather than aggravate the unavoidable ups and downs of the business cycle, enabling steadier growth, high levels of employment and rising living standards to be sustained into the medium and longer term. And if we can do that, then we will contribute indirectly to the supply side by creating an environment which encourages more rational, longer term, decision-making throughout the economy. So that, Chairman, is what we are trying to do. It's not a question of whether unemployment is a price worth paying for curbing inflation, as if they were alternative options. Let me illustrate the point with some relevant facts about our economic performance over the past six years or so since we adopted an inflation target.