country even if – and i agree – much of that difference is to be explained by structural, supply - side, rigidities rather than simply cyclical divergence. no - one, mr chairman, is more conscious of the limits to what we can hope to achieve through monetary policy than i am. but operating within those limits, we have been able to achieve greater macro - economic stability, reflected in the rate of inflation, than we have seen for a generation. and that stability, together with the improved supply - side flexibility of the economy, has delivered a rate of unemployment in the economy as a whole that, despite the recent modest upturn, is still close to the lowest rate we have seen in almost 20 years. and what is true for the uk as a whole is true for most of the individual regions of the economy. that includes the west midlands, where, on a claimant count basis, unemployment at 4. 8 % is actually only marginally above the national average and still just about the lowest it has been since 1980. macro - economic stability cannot solve all our problems. but it can certainly help, and is in fact the best contribution that monetary policy can make to the sustained growth of output, high levels of employment, and rising living standards. it helps particularly where there is supply - side flexibility and sectoral diversification. birmingham, and the west midlands more generally, have made – and are making – considerable strides in those directions, building on existing strengths certainly but also developing new skills and new activities. birmingham city 2000 has, i know, played an important role in this forward - looking approach. i congratulate you and encourage you to persist in your endeavours – in conjunction with the west midlands regional development agency – well into the next millennium, despite your apparently non – y2k – compliant title.

unwelcome it may be to establish producers – is a vital driver of supply - side improvement, increasing the potentially sustainable growth rate at the macroeconomic level from which we all stand to benefit. nor can we realistically hope to avoid all shorter - term fluctuations associated with the business cycle, for example, or as a result simply of random shocks - though we can aim to moderate their impact rather than exaggerate it as we have done at times in the past. nor, finally, can we hope to insulate ourselves from shocks originating overseas. that does not mean that we do not understand the painful impact of the recent state of the world economy or of the strong exchange rate. nor does it mean that we simply ignore the plight of the adversely affected sectors. we are concerned – as you are – with the health of every sector of the economy, we fully appreciate the interdependence of the different sectors, and we well understand the part that greater real exchange rate stability can play in promoting more balanced economic growth. but the harsh reality is that we could only seek to achieve a particular exchange rate in order to protect the internationally exposed sectors at the risk of destabilising the economy as a whole, and there would – as we have recently seen – be no assurance even so that we would be successful in achieving and maintaining a particular exchange rate. we do, as i say, take full account of the impact of world demand and of the exchange rate on the likely path of inflation, and, to the extent that these influences are exerting a disinflationary effect, interest rates are lower than would otherwise be the case. that was the reality behind the statement made after our last mpc meeting that if the exchange rate does not decline from its present high level, as we assume that it will, at least in line with interest rate differentials, then, depending on other developments in the economy, there might need to be further easing of interest rates to keep inflation on track. i stand by that today. but let me be quite clear. this does not mean that we have any particular target for the exchange rate. nor can it mean that we set interest rates simply by reference to those prevailing elsewhere. it is naive to complain that our interest rates are twice those in europe without recognising that we are operating closer to capacity than is the case in the eurozone as a whole – or that unemployment there is running at twice the rate in this