opening remarks to the bank of england ‘ independence – 20 years on ’ conference remarks given by mark carney, governor of the bank of england bank of england ‘ independence – 20 years on ’ conference, fishmongers ’ hall, london 28 september 2017 all speeches are available online at www. bankofengland. co. uk / speeches welcome to this conference marking 20 years of independent monetary policy making in the uk. we are here because long and varied experience has shown that price stability is the best contribution monetary policy can make to the public good. high inflation hurts the least well off in society the most. it distorts price signals, inhibits investment, and ultimately damages the economy ’ s productive capacity. equally, deflation imperils growth and employment, and, in the extreme, leads to financial ruin and economic collapse. the happy medium is low, stable and predictable inflation. a little inflation greases the wheels of the economy, and it gives monetary policy space to deliver better outcomes for jobs and growth when shocks hit. recognising the value to society of price stability is one thing, delivering it is quite another. the bad old days prices were anything but stable during the 1970s and 80s. with the collapse of bretton woods in 1971, uk monetary policy lost its nominal anchor. there followed a series of botched experiments, with targets for incomes, monetary aggregates and the exchange rate. the costs of such failures were enormous, with prices rising by 750 % in the twenty - five years to 1992, more than over the previous two hundred and fifty years. unemployment was high and growth volatile. the inflation target rose from the ashes of the erm debacle twenty five years ago this month, marking the point when price stability became the unambiguous objective of uk monetary policy. the new framework was a success, though only a partial one. that ’ s because, with interest rate decisions still made by the chancellor, it wasn ’ t fully credible. experience teaches that political control of monetary policy decisions suffers from time inconsistency, in which policymakers promise low inflation, then go for faster growth and ultimately achieve neither. conversely, welfare can be improved if governments first choose the preferred rate of inflation and then delegate operational responsibility to the central bank to achieve it. all speeches are available online at www. bankofengland. co. uk / speeches the uk framework for monetary independence so it was in 1997 when gordon brown boldly gave the bank of

), we could cushion its negative effect on the economy as a whole by providing an offsetting stimulus to the domestic economy. had we not done so, we might well have suffered recession in the uk. but the hard question for us is could we - and should we - attempt to shelter internationally - exposed businesses even if that were to mean putting our objective of sustained low inflation at risk. in fact i ’ ve not heard anyone argue openly for that - and i would be surprised if they did. the reality is that if we were to put the economy as a whole at any significant risk of accelerating inflation notwithstanding our mandate - we would not succeed in providing the intended protection to the internationally - exposed sectors other than possibly in the very short term ; and in the medium to long term our overall economic performance would almost certainly be worse. the more hopeful news is that we have more recently seen strong signs of recovery - of both economic activity and exchange rates - in a number of emerging markets and transition economies. and we are seeing a strengthening of domestic demand and of output in the eurozone, where the currency is commonly acknowledged to have considerable potential for appreciation. these trends, and the extraordinary efforts of uk businesses themselves to cope with the hostile international environment, are already resulting in a stronger net external trade performance. that in turn is contributing to the recovery, particularly in manufacturing output growth and to the more encouraging news in some recent surveys. to the extent that this improvement in external demand persists, it will help to ease the exceptional pressures on the most internationally - exposed sectors, and contribute to a better balance within the uk economy. but it needs, of course, to be accompanied by corresponding moderation of the growth of domestic demand - after the offsetting stimulus of a year ago - if we are to maintain overall stability. that essentially is why interest rates have had to rise since last autumn. mr chairman, most people, as i say, accept in principle that sustained monetary stability is good for the economy as a whole in the longer term - though it is accepted with varying degrees of enthusiasm by adversely affected sectors at any particular time. but there is, nevertheless plenty of room for debate about the operation of monetary policy in practice. specifically at present the mpc is often accused of being overzealous - and it is suggested that we don ’ t in fact need to raise interest rates at this point in order to achieve the inflation target. that is a more technical question. changes in interest rates take