that we make concrete progress in the first period of our new objective – while we re - wire ourselves we need to be getting some early runs on the board. as i mentioned a moment ago, from time to time i hear it asserted that the pra is not doing anything to advance its new objective. let me be blunt : people who make that claim are simply not paying attention. parliament foresaw this problem and required us to publish a report setting out what we are doing. we did this in july and it ’ s a real page - turner, perfect for reading on your sun - lounger on the beach. but just in case you had other things to read in august, or became a little drowsy before getting all the way through it, let me very briefly pick out a few things from the list of what ’ s been done so far. 7 i ’ ll start with our decision to scrap the bankers ’ bonus cap. believe you me, this was not an easy thing to get rid of and a wise member of the treasury select committee was probably right to ask me if this was the single most unpopular thing the pra might ever have done – to which my answer was yes! ( this was in fact great news as it allowed me to pull ahead of nikhil in our competition to be the most unpopular regulator in the land ). but i was nonetheless keen to make this change early in the life of our new objective. we have 6 in fact, it now appears on the front page of the advice that goes to our rule - making committees. 7 competitiveness and growth : embedding the pra ’ s new secondary objective | bank of england bank of england always seen this piece of regulation as being completely unnecessary for prudential purposes – in fact actively counterproductive, as it encouraged higher base salaries which were harder to adjust in response to shocks. and it was clearly damaging for competitiveness across two of our three channels – it made the uk a less attractive location for global firms and talent, and gave uk firms a disadvantage in attracting talent in their foreign operations. more than this, precisely because scrapping the cap is unpopular getting rid of it was an important early signal of intent, that we are serious about changing regulations where they don ’ t do something useful and are bad for competitiveness and growth. and i can tell you that this move was noticed at the highest level in major international banks across the world. i will stick with the topic of bankers

mr king speaks about interest rates, policy and the uk economy speech given by mr mervyn king, deputy governor of the bank of england, to the scottish council development and industry, held in edinburgh on 11 october 1999. * 1. * * introduction twelve months or so ago, interest rates were 7½ % ; now they are 5¼ %. twelve weeks ago they were only 5 %. so why do interest rates sometimes go down and sometimes go up? and why, in particular, did interest rates rise in september? at one level, the answer to these questions is straightforward : interest rates move – whether up or down – in order to keep inflation on track to hit the target of 2½ %. but, at a deeper level, why should monetary policy aim at a target for inflation rather than at growth and employment? most people in this audience today belong to the “ inflation generation ”. you will have lived through a time in which inflation was a fact of life. for much of uk history prices were relatively stable. but during the 1960s inflation started to rise. in the 1970s inflation averaged no less than 13 % a year with a peak of over 27 % in august 1975. during the following decade inflation averaged 7 % a year, and it has fallen to around 4 % in the 1990s. between june 1997 – when the monetary policy committee met for the first time – and august 1999 rpix inflation averaged 2. 6 %. during that period, inflation has ranged from a low of 2. 1 % to a high of 3. 2 %. the experience of the past decade has been that low and stable inflation has gone hand in hand with more stable growth of output and employment. total output in the economy has now increased for 28 consecutive quarters – an unprecedented period of positive growth. and unemployment, as measured by the labour force survey, has fallen from a peak of 10. 7 % in 1993 to its current rate of 5. 9 %, the lowest level for nearly twenty years. the current outlook is for continued growth with low inflation. if britain is to retain this degree of macroeconomic stability, then there will be periods when interest rates will rise and periods when they will fall. for some commentators, interest rates can never be too low. but for too long there has been a view that interest rates should rise only when necessary, and should be lowered whenever possible. that asymmetric response was a recipe for instability. the current monetary policy regime has been designed to lock in