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

england operational control for setting monetary policy. the bank of england act of 1998 clarified – for the first time in three centuries – the bank ’ s responsibilities. it gave a new independent body of the bank, the mpc, a clear remit to achieve the inflation target over the medium term. the inflation target is symmetric ( meaning we care as much about returning inflation to target from below as from above ), and it applies at all times. subject to achieving the target, the mpc is also required to support the government ’ s economic policy objective, currently strong, sustainable and balanced growth. accountability under what mervyn king termed constrained discretion, the bank takes its orders from the remit and is accountable to parliament and the people for its performance. their expectations certainly have changed since montagu norman justified his decisions to a compliant predecessor of the tsc by appealing opaquely to his “ instincts. ” not a response i ’ ve dared to venture during my thirty odd parliamentary testimonies. more seriously, the need for the bank to be open and accountable is greater than ever, not only because of the growing distrust of institutions and the ‘ experts ’ who reside within them, but also because better public understanding makes our policies more effective. that ’ s why the bank has increased dramatically the scale and quality of its outreach. we now publish all relevant information for each policy decision on the day it is released. we disclose the key judgments underlying our forecasts and account for differences when they occur. leveraging our network of 12 regional agencies, we meet with thousands of businesses every year, discuss with the tens of thousands of people who attend our town halls and public forums, and engage with the hundreds of thousands more through social media. performance and lessons learned the gains from independence have been enormous. in the two decades that followed independence, inflation averaged just under 2 % compared with over 6 % in the preceding two. it ’ s been one - fifth as volatile. crucially, independence allowed monetary policy to respond boldly and effectively to the biggest financial crisis in a century. and it leaves the bank well placed to address a range of possible developments around brexit. as former governor eddie george once remarked, in the half century that followed its nationalisation in 1946 “ the bank operated under legislation which, remarkably, did not attempt to define our objectives or functions. ” they were, instead, “ assumed to carry over from [ the bank ’ s ] earlier long history. ” george, e ( 2000 ),