fewer large shocks over the past year. chart 9 : significant forecast misses in 2021 and 2022, much smaller since sources : ons and bank calculations. third, it seems to me all the more important, were this period of unstable and unpredictable costs and supply to persist, to retain the current institutional set - up, in which an operationally independent monetary authority seeks to meet a fixed inflation objective. if the response to a conventional demand shock is analytically more straightforward, it ’ s also easier from a political perspective. people mind less about higher interest rates if, at the same time, the real economy is also strong. it ’ s when the opposite is true – when inflationary pressure is rising even in an environment of weaker economic growth – that policy is really tested. i mentioned earlier that, in the face of similarly large increases in energy prices in the mid - 1970s, one thing that might have made the job of inflation control that much harder was the widespread indexation of pay to prices. but it didn ’ t make it impossible. at the time, wage indexation was also common elsewhere in europe, including in germany, which had also seen a similar rise in wholesale energy costs. yet inflation in the uk remained extremely high, and a long way above that in germany, even after that original shock had faded ( chart 10 ). by contrast the uk ’ s experience in the past three years, faced again with a very substantial rise in import costs, has proved much less enduring and much closer to that elsewhere in europe. what counts, it seems to me – what today ’ s arrangements in the uk share with those in germany in the 1970s – is that monetary policy is now set by an independent authority in pursuit of a fixed nominal objective. none of that is to say that the mpc shouldn ’ t be held accountable, that its actions shouldn ’ t be examined and questioned all the time or that its models and communication cannot be improved. that accountability, to parliament and the wider public, is itself a critical part of the current framework. equally – and this is a point not about the expertise of individuals but about institutions and the incentives they create – i ’ ve little doubt that, had we gone through the pandemic and the war with the monetary regime of the 1970s, in which policy was governed as much by the political as the economic cycle, things would have been a great deal worse. chart 10 : uk, german inflation much closer through this episode than in the 1970s sources

they may face divergent fiscal positions which would affect their appropriate fiscal / monetary policy mix in different directions - though this should be contained by the growth and stability pact. or their domestic policy needs may diverge as a result of economic shocks of some sort - a classic but unique example being german unification, but the recent global economic disturbance is perhaps another example. so the risks of divergent monetary policy needs within the monetary union are real. they are essentially similar to the risks of sectoral and regional divergences within a national currency area. and if there were to be material divergence within the eurozone the tensions could be more severe than in a national currency area because alternative mechanisms - labour migration or fiscal redistribution through a central budget - which help alleviate regional disparities in the national context - are less well developed at the eurozone level. some commentators point to the present inflationary pressures in ireland as an example of the problems that could arise on the upside as it were - through i ’ m not sure how far one can generalise from the irish case. the fact that the uk did not join in the first wave of emu was a disappointment to some people, including to some of our european partners - but it was also a considerable relief to them - we could have been the elephant in the rowing boat! it was i must confess also a relief to me. if we had joined emu from the start - and had eurozone interest rates over the past year or so it is very difficult to envisage how we would have avoided an inflationary boom in this country. it is true that, to the extent that the present imbalance within the economy reflects sterling ’ s appreciation against the euro, we would have been protected against that. but, with accelerating inflation in the economy as a whole, the price of such protection of the suffering sectors would have been tantamount to real exchange rate appreciation, which would in any event have damaged their competitive position. and, it would not in that case be possible to reverse that effect through exchange rate adjustment. joining emu from the start would in fact, as things have turned out, have been a strong form of relaxing our objective for consistently low inflation in the economy as a whole to ease the pressures on the internationally - exposed sectors which i argued against a few moments ago. there are no easy answers so long as our economies continue to diverge. coping with such tensions as may emerge within the eurozone - with or without the uk