rachel lomax : uk monetary policy – the international context speech by ms rachel lomax, deputy governor of the bank of england, at the apcims annual conference, london, 17 october 2005. * * * those of you who have logged on to the bank of england ’ s website recently will have noticed that it has turned a cheerful shade of orange. it is a lovely website and we are very proud of it. but perhaps now was not the best time to major on pictures of happy shoppers clutching bulging carrier bags! the fact is that website design – like monetary policy - is beset by information problems and lengthy lags. these make it very hard to get the timing of changes just right. when the organisers of this conference pressed me for a title some weeks ago, i decided to talk about the international context for uk monetary policy for two reasons. first, i was fresh from a summer spent reading this year ’ s top business books, whose key theme is the dizzying pace of change in the global economy. but second, i wanted look beyond the shopping story that – understandably – tends to dominate the press, to some of the other factors that have to be weighed when the mpc sets interest rates. but let me start with the recent weakness in retail spending. judging by the latest indicators, this looks like persisting, at least in the near term. but while spending on retail goods has been virtually flat since last autumn, total consumer spending, including services and utilities, has continued to grow, though quite slowly. and while the prospects for consumption are clearly important, so too are those for other key drivers of the economy, such as business investment and net exports. the question is : if consumers decide to save more, are the conditions in place for other sources of demand to take up the slack? the answer depends in part on what is happening in the rest of the world. plainly, developments in the rest of the world will influence domestic monetary policy. the uk is a very open economy, exposed to trends and shocks that affect supply as well as demand, and our financial markets are fully integrated with global markets. sterling is one of the world ’ s most liquid currencies, and the ftse 100 is heavily weighted with multinational companies. let me give one example of what this can mean in practice. over recent years, the progressive shift toward sourcing from low cost producers has been depressing import prices, and improving the terms on which we trade. this

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