andrew bailey : new prospects for money speech by mr andrew bailey, governor of the bank of england, given at the bank of england, london, 10 july 2023. * * * i want to start by welcoming the chancellor's announcements this evening aimed firmly at encouraging investment in the productive economy. since the financial crisis fifteen years ago we have seen potential output growth fall in many economies, the uk included. a sustained and robust improvement of the supply side of the economy is the only means to raise productivity and thereby the standard of living in a way that lasts the test of time. in pursuing supply side improvements, we must also respond to recent events in a way that recognises the need to diversify our supply chains and make them more robust, but achieves diversification without abandoning open and competitive markets and free trade. we will get the best outcomes by pushing back against economic and financial fragmentation. i spend time meeting businesses with the bank's network of agents around the uk, and i am left in no doubt that there are many opportunities for successful long - term investment, and that we must take up these if we are to respond to challenges and opportunities such as the transition to net zero, digitalisation and artificial intelligence. but as you will understand, my pre - occupation at the moment is inflation. currently at 8. 7 % in the latest data, consumer price inflation is unacceptably high, and we must bring it down to the 2 % target. the uk is not alone in this. there is currently a popular saying among central bankers, from the danish philosopher soren kierkegaard, which, to paraphrase slightly, is that life can only be understood backwards ; but it must be lived forwards. this is an important lesson as we do what is necessary to bring inflation back to target. looking back at all that has happened in recent years, the uk economy has been hit by a series of external inflationary shocks : higher goods prices in global markets owing to supply bottlenecks created by the pandemic ; and higher energy and food prices following from russia's war on ukraine and its people. looking ahead, uk headline inflation is set to fall markedly over the remainder of the year. this largely owes to lower energy prices as last year's substantial increases drop out of the annual calculation. food prices should fall too as lower commodity prices feed through to prices in the shops. however, while the level of economic activity has failed to grow beyond its prep

the annual growth rate of loans to households ( adjusted for loan sales and securitisation ) stood at 0. 3 % in december, broadly unchanged since the beginning of 2013. the annual rate of change of loans to non - financial corporations ( adjusted for loan sales and securitisation ) was – 2. 9 % in december, after – 3. 1 % in november. the january 2014 bank lending survey provides indications of some further stabilisation in credit conditions for firms and households and a smaller net decline in loan demand by enterprises. overall, weak loan dynamics for non - financial corporations continue to reflect their lagged relationship with the business cycle, credit risk and the ongoing adjustment of financial and non - financial sector balance sheets. since the summer of 2012 substantial progress has been made in improving the funding situation of banks. in order to ensure an adequate transmission of monetary policy to the financing conditions in euro area countries, it is essential that the fragmentation of euro area credit markets declines further and that the resilience of banks is strengthened where needed. this is the objective of the ecb ’ s comprehensive assessment, while the timely implementation of additional steps to establish a banking union will further help to restore confidence in the financial system. to sum up, the economic analysis confirms our expectation of a prolonged period of low inflation, to be followed by a gradual upward movement towards inflation rates below, but close to, 2 % later on. a cross - check with the signals from the monetary analysis confirms the picture of subdued underlying price pressures in the euro area over the medium term. as regards fiscal policies, euro area countries should not unravel past consolidation efforts and should put high government debt on a downward trajectory over the medium term. fiscal strategies should be in line with the stability and growth pact and should ensure a growthfriendly composition of consolidation which combines improving the quality and efficiency of public services with minimising distortionary effects of taxation. when accompanied by the decisive implementation of structural reforms, these strategies will further support the still fragile economic recovery. governments must therefore continue with product and labour market reforms. these reforms will help to enhance the euro area ’ s growth potential and reduce the high unemployment rates in many countries. we are now at your disposal for questions. bis central bankers ’ speeches