(2017), “Watching the Watchers”, speech at the GARP 18th Annual Risk Management Convention, New York. Available at https://www.bankofengland.co.uk//media/boe/files/speech/2017/watching-the-watchers-forward-looking-assessment-and-challenge-of-a-central-banks-own-financialrisk.pdf. 24 The details of the capital framework are contained in a Memorandum of Understanding between the two institutions, available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/718481/The_Financial_Relationship_ between_the_Treasury_and_the_Bank_of_England_-_MoU_web.pdf. 25 See Carney, M. (2018), “New Economy, New Finance, New Bank”, Mansion House Speech 2018, available at https://www.bankofengland.co.uk/-/media/boe/files/speech/2018/new-economy-new-finance-new-bank-speech-by-mark-carney.pdf. 8  All speeches are available online at www.bankofengland.co.uk/speeches  8  Where are we heading? Where does all this leave policy and the balance sheet through which it is implemented? In August 2018 the MPC voted to raise Bank Rate from 0.5% to 0.75%. That was based on our Inflation Report forecast, which showed that absent an increase in Bank Rate, the economy was likely to move into excess demand, and that the resulting wage pressures would push inflation above our 2% target. In September we then voted to leave Bank Rate unchanged at 0.75%. And looking ahead we expect that, if the economy continues to evolve, as it has done so far, broadly in line with our August forecast, then further limited and gradual rises in Bank Rate will be appropriate to return inflation sustainably to the target. As well as being the collective view of the committee, this is also my personal view, which is why I voted for an increase in Bank Rate in August. The signal I take from the labour market indicators is one of labour market tightness and rising pay pressures, which I expect to support inflation in the medium term.

15  Today our toolkit  contains three specific liquidity insurance facilities offering money and/or high quality collateral for variable terms and prices as well as the liquidity insurance offered in the course of implementing monetary policy. 16  But there’s little point opening the door to our business more widely if only a narrow range of shapes fit through it. So as well as expanding the quantity of our tools at our disposal, over the years we have worked to extend the access to them by making our facilities cheaper and making them available against a wider set of collateral and to a larger number of counterparties. 10  An excellent description of how banks operate is given in McLeay, M. et al (2014), “Money creation in the modern economy”, Bank of England Quarterly Bulletin 2014Q1, available at https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/moneycreation-in-the-modern-economy.pdf. 11 Bagehot, W. (1873), “Lombard Street” 12 These were the ability to vary reserves demand both intra-day and day-to-day, and the Standing Facilities which provided overnight liquidity insurance, allowing banks to borrowing reserves in unlimited quantity, secured against very high quality collateral or deposit excess reserves directly with the Bank. 13 The Special Liquidity Scheme operated as a ‘collateral swap’, allowing banks to exchange their illiquid assets (principally packaged as an ABS or covered bonds) for liquid UK T bills. 14 Winters, B. (2012), “Review of the Bank of England’s framework for providing liquidity to the banking system”, available at https://www.bankofengland.co.uk/-/media/boe/files/news/2012/november/the-banks-framework-for-providing-liquidity-to-the-banking. 15 The Bank’s response to the Winters review can be found at https://www.bankofengland.co.uk//media/boe/files/news/2013/march/response-of-the-boe-to-the-three-cort-commissioned-reviews.