Jon Cunliffe: Monetary policy one year on Speech by Sir Jon Cunliffe, Deputy Governor for Financial Stability of the Bank of England, to the Cambridge Society for Economic Pluralism, Cambridge, 28 October 2014. *  *  *  My appointment to the Bank of England was announced in July 2013, at about the same time we first had official data in showing the UK economy growing strongly. I joined almost exactly a year ago on 1 November, shortly before the inflation data for October came in showing a 0.5pp drop to 2.2%, the biggest fall in over 18 months. But as always in economic policy making one has to distinguish between correlation and causality. The latter is nearly always uncertain. Indeed, as an economic policy maker, especially a forward looking monetary policy maker, one must accept one is almost always making policy under conditions of considerable uncertainty. Perhaps that is why you so often hear from monetary policy makers about puzzles and how “the data are unusually difficult to read this month”. Our job on the MPC is precisely to make judgments about the future on the basis of imperfect information. To decide when we have enough to act and when it is better to wait. And to adapt those judgments as the economy evolves. Against that background, and on the occasion of my first anniversary at the Bank, I want tonight to review how the economy has evolved over the last year against what was expected when I joined the MPC.

Within its macroprudential mandate, the ECB will contribute to this end. Despite the potential for monetary policy to influence economic growth in the short term, strong, sustainable and balanced growth requires other policymakers to assume their responsibilities. From a global perspective, one of the key ingredients for raising potential growth and productivity is openness. Open trade, investment and sustainable financial flows play a key role in the crossborder diffusion of new technologies that drive forward efficiency improvements. Preserving openness is thus key to strengthening global growth potential. It should be underpinned by effective multilateral cooperation, including in the field of financial regulation and supervision. As regards the euro area, strengthening its long-term growth potential calls for decisive action to address the remaining structural issues. Reform implementation needs to be substantially stepped up, with further actions to improve the business and regulatory environment aimed at boosting investment and increasing productivity. Labour market rigidities need to be reduced further to enhance job creation and reduce unemployment, especially for young people. To foster reform implementation at country level, a full and consistent application of the EU’s policy framework is required, including the European Semester and the macroeconomic imbalance procedure. Likewise, full and consistent implementation of the Stability and Growth Pact remains crucial to ensure confidence in the EU’s fiscal framework and to safeguard public debt sustainability. In the current environment, a broadly neutral euro area fiscal stance strikes an appropriate balance between aggregate stabilisation and sustainability needs.