. in particular, the mpc ’ s chosen approach has been to accept a temporary period of above - target inflation, rather than seeking to hold inflation as close to the 2 % target as possible at all times. achieving the latter would have required a markedly higher level of bank rate and with it most probably a somewhat higher level for sterling. that would have moderated some of the external inflationary impulses facing us, but would also have depressed activity and pay even more and retarded the requisite re - balancing of the economy. the committee ’ s approach has, i believe, been consistent with its mandate from the chancellor of the exchequer, which recognises “ that the actual inflation rate will on occasions depart from its target as a result of shocks and disturbances ” and that “ attempts to keep inflation at the inflation target in these circumstances may cause undesirable volatility in output. ” it is almost 100 years to the day since the ill - fated titanic was launched from queen ’ s island, just across the channel. it may be tempting to see a parallel between the hubris and excessive risk - taking that resulted in its tragic encounter with an iceberg on its maiden voyage, and the hubris and excessive risk - taking that led up to the great north atlantic financial crisis of 2008. but a more optimistic parallel is provided by rebirth of the old harland and wolff shipyard as the titanic quarter, the biggest regeneration project in northern ireland ’ s history and the largest waterfront redevelopment in europe. that serves as a reminder of the ever changing nature of the fabric of the economy, as old industries make way for new. and it also serves as a suitable metaphor for the uk economy more generally, as it begins to re - balance in the wake of the deepest downturn in the post - war period. thank you! bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches

low credit growth and high savings. second, the injection of public funds into stricken banking systems, coupled with a loss of tax revenues in the downturn, results in a deteriorating fiscal position, which subsequently needs correction. third, such crises often also result in some long - lasting impairment of the economy ’ s supply capacity. we can see the first two mechanisms at work in the uk economy. but it is not so easy to see what is happening to the economy ’ s supply capacity and therefore also to the available margin of spare capacity, which is an important determinant of domestic inflationary pressures. certainly there is some spare capacity in the labour market, where the unemployment rate is around 3 percentage points above its pre - crisis level. but the margin of spare capacity within firms is less clear. in recessions, employers normally hang on to essential or hard - to - replace employees. as a consequence, the growth in output per hour worked typically slows, while unused capacity is simultaneously created. productivity then accelerates sharply in the recovery phase, as that labour is brought back into use and the margin of unused capacity diminishes. but while productivity growth slowed sharply in both services and manufacturing during the downturn, only the latter has subsequently picked up ( chart 7 ). moreover, since the trough, employment and total hours worked have risen by around 1½ %, not much less than the 2½ % rise in output. this suggests underlying productivity growth, and with it the rate of growth of the economy ’ s supply capacity, may have fallen back during the recession. and that is corroborated by business surveys, which suggest that manufacturers are, on average, back to pre - crisis utilisation rates, while the margin of spare capacity has also closed significantly in services firms ( see chart 8 ). it is, though, unclear why underlying productivity growth should have been quite so weak. to be sure, the collapse in business investment has resulted in a somewhat lower rate of growth taken from the imf ’ s world economic outlook, october 2009. bis central bankers ’ speeches of the capital stock, but estimates suggest that can only account for a modest slowing in underlying productivity growth. and while some businesses will certainly have been forced to reduce the scale of their operations or close because of lack of access to credit, corporate bankruptcies have remained at relatively low levels. overall, there are few objective indicators to suggest a major hit to capacity growth from the crisis and subsequent recession. it is