the rt hon sir edward george : the bank of england ’ s tasks through the monetary policy committee speech by the rt hon sir edward george, governor of the bank of england, at the engineering employers federation ( eef ) biennial dinner, london, 12 february 2002. * * * let me open my defence by trying to explain to you what we at the bank - through the mpc - are tasked to do, and why. the task sounds straightforward. it is to set short - term interest rates with the consistent aim of hitting the government's symmetrical 2½ % inflation target ( on a precisely defined measure of retail price inflation - rpix ). now the reason we've been set that task is not - as some people imagine - because either we or the government think that consistently low inflation is the be all and end all of economic life. it is because we've learned from long experience that consistently low inflation is a necessary ( though not in itself sufficient ) condition for the sustained growth of output of the economy as a whole, for high levels of employment, and for rising living standards, which are more fundamentally the things that we are all seeking to achieve. carrying out our task is not as straightforward as it sounds because there is not, of course, a simple, direct link between interest rates and the rate of inflation. interest rates essentially affect the demand side of the economy. they do not directly influence the supply side, which depends upon a whole host of structural characteristics of the economy which are largely beyond the direct reach of monetary policy. what we have to do in managing short - term interest rates is to keep overall demand growing broadly in line with the underlying - sustainable supply - side capacity of the economy as a whole to meet that demand. in other words we are trying to maintain overall, macro - economic, stability in a much broader sense, in the medium - and longer - and not just the short - term ; and the government's inflation target is the criterion against which our success, or otherwise, in achieving that broader macro - economic stability is to be measured. our problem is that we don't know with any great precision or confidence exactly what is happening on the supply - side - that's to say precisely what rate of growth we can hope to sustain. we don't know precisely either what is currently happening, or what is likely to happen looking forward over the next couple of years or so to overall, aggregate, demand. and we don '

2010 – 11 ”, hmso, march 2010. scale of the boost to the economy means that the all - round financial benefits for the public finances should far outweigh any cash deficit that might be left at the end of the programme. the gilt sales programme will not be the only technical issue surrounding an exit from unconventional policies. the bank is also likely to re - introduce its reserves averaging framework for commercial bank reserves, for example. that will give the bank the ability to evaluate and then drain out any excess liquidity in the system. unlike the us, we do not need to develop new techniques to drain cash. the bank can do that, for example, by issuing one - week bank of england bills as it did in 2008 / 09. conclusions in this speech, i have commented on why the asset purchases were undertaken and how well they worked. i have described some of the complicating factors in designing, implementing and maintaining the operations. finally i have covered some of the issues we will face when we eventually come to sell the assets – noting that it is possible that we yet might purchase more. the unconventional journey is not over yet!