without leading to a pickup of inflation? or is there a risk that the apparent insensitivity of inflation to movements in the economy is only temporary, and might lead to mistakes in monetary policy if low inflation were taken for granted? to answer those questions, i want to consider three possible explanations for why inflation has not so far risen despite substantial falls in unemployment and spare capacity. first, reforms enacted over the past twenty - five years have made the labour market more flexible and lowered the rate of unemployment consistent with stable growth in money wages. incentives to work have increased - through initiatives like the new deal and the working tax credit. benefits paid to the unemployed have fallen relative to earnings. and the share of wage settlements covered by collective bargaining has fallen sharply. those reforms, and a steady growth in total money spending, ensured that unemployment fell in almost every quarter since 1992 while wage inflation remained broadly stable. moreover, changes in unemployment have resulted in smaller movements in the rate of wage increases than in the past. it is possible that migrant labour may be easing the bottlenecks and skill shortages in what is undoubtedly a tight labour market. reports from our business contacts around the country, collected by our agents, suggest that migrant labour is indeed relieving some of those shortages, more so in recent months with recruitment from the new members of the european union. migrant workers are employed in fish processing here in the south - west, and even in the production of cornish pasties, as they are in an increasingly wide range of industries in manufacturing, construction and services. that may be suppressing signs of underlying wage pressure that would otherwise have become evident by now. second, an increase in the pace of productivity improvement may have made it possible for output to grow more rapidly without adding to inflationary pressure. on the face of it, however, there is little evidence for this hypothesis. productivity in the private sector - measured as output per hour worked has grown at an annual rate of around 2 ½ % since 1995, around the average rate in the period 1980 - 1995. in the united states, private sector productivity growth increased from 1 ½ % in the earlier period to almost 3 % after 1995. it is striking that productivity growth in the private sector was higher in britain than in the united states for most of the past quarter of a century, although our level of productivity remains inferior. only in the past few years has american productivity accelerated. no such change is yet visible in the official data for the united kingdom. it

mark carney : opening statement at the european parliament ’ s econ committee opening statement by mr mark carney, governor of the bank of england and chairman of the financial stability board, at the european parliament ’ s econ committee, brussels, 7 december 2015. * * * mr chair, honourable members of the economic and monetary affairs committee, it is a pleasure to address you in my capacity as vice - chair of the european systemic risk board. maintaining financial stability requires strong policy frameworks, a dynamic understanding of risks, and, when appropriate, co - ordination of individual macro - prudential policies. the need for a coordinating authority within the eu is particularly important, given the unique nature of the single market and its high degree of integration. in fulfilling this role, the esrb is making financial stability policy more effective across the eu. 1. on openness in the eu the openness of european member states supports economic dynamism by facilitating trade and specialisation, by enhancing competition, and by encouraging more diversification and risk - sharing. larger markets mean wider choice, bigger incentives for innovation, and greater scope to realise economies of scale. while openness boosts dynamism, it also increases exposure to shocks from abroad. financial linkages in particular can create new vulnerabilities and the potential to deepen shocks. the esrb can help build the resilience to maximise the benefits from openness and minimise the risks it entails. in this spirit, i would like to outline three specific contributions of the esrb during my time as vice chair. 2. building stronger macroprudential frameworks the esrb has promoted stronger macroprudential frameworks across the union. specifically the esrb has issued recommendations to encourage national legislators to establish macroprudential authorities within their jurisdictions. its handbook on operationalising macroprudential policy in the banking sector embodies practical information on how to set policy using the newly - established powers. the handbook sets out best practice on an instrument by instrument basis, suggests indicators to guide their use, and outlines the legal framework governing them. it also details potential spillovers. where it judges that best practice is not being followed, the esrb can use “ soft law ” to issue recommendations on an “ act or explain ” basis to mitigate financial stability risks and curb spillovers. for example, last year the esrb gave guidance to national macroprudential authorities on how to set countercyclical