. policy actions have typically been explained solely in terms of inflation : for example, reducing the risk that inflation will undershoot the target in the medium term or extending the horizon over which we intend to return inflation to target. although, technically accurate, such explanations don ’ t speak to the distress of businessmen and women worrying about the future of their companies or to the anxiety faced by families unsure as to whether they will still be in a job next week. make no mistake : inflation targeting provides the flexibility for policy to respond to such anxieties. and we have fully exploited that flexibility over recent years. but it doesn ’ t provide a natural framework – a ready vocabulary – in which this flexibility can be clearly communicated. this almost exclusive focus on inflation in our communications didn ’ t matter for much of the first 20 years of inflation targeting in the uk. indeed, arguably it was one of its attractions. prior to the introduction of inflation targeting in 1992, the uk had searched – in vain – to find a credible anchor for monetary policy and inflation expectations. the simplicity and clarity provided by a numerical target for inflation helped to establish the credibility of monetary policy and was instrumental in fostering the period of stable growth and low inflation enjoyed in the decade or so prior to the financial crisis. but in the aftermath of the crisis and faced with five years of almost no growth, it is natural for people to ask what monetary policy is doing to help get the economy going. the control of inflation is important but so too is supporting the creation of jobs as unemployment rose to its highest level for almost twenty years. there was a real risk that this would start to erode the trust and support of inflation targeting ; to damage its democratic legitimacy. this was arguably evident earlier this year in the discussions in the media and amongst some commentators as to whether the framework of monetary policy should be altered, say to adopt a nominal gdp target or for the mpc to have an explicit objective for growth. a subtext of that discussion was that the inflation target was in some way acting as a constraint on the support that monetary policy could provide to the faltering recovery. to repeat : such criticism is misplaced. the credibility provided by the inflation target is a prerequisite for monetary policy to be able to respond so aggressively to the fallout from the crisis. and with inflation being above target almost consistently over this period, it is hard to argue that monetary policymakers have somehow been fixated by inflation. but the forward guidance provided

gdp peaked sources : ons and bank calculations. notes : the chart plots real business investment. the range includes the recessions of 1973, 1979 and 1990. all speeches are available online at www. bankofengland. co. uk / speeches chart 3 : uk real business investment to gdp ratio is falling percent of gdp source : ons. chart 4 : investment consistently weaker post - crises average financial recession cumulative change ( per cent ) average normal recession - 5 0 - 10 years - 15 - 20 - 25 - 30 source : jorda, o., schularick, m. and taylor, a. ( 2013 ), ‘ when credit bites back ’, journal of money, credit and banking, vol. 45, issue s2. notes : the chart shows the cumulative change in per capita investment. the grey shaded area shows a 95 % confidence interval around the average normal recession. all speeches are available online at www. bankofengland. co. uk / speeches chart 5 : uk, us and euro - area capital overhangs being worked off uk capital to output ratio euro area capital to output ratio euro area trend capital to output ratio us capital to output ratio us trend capital to output ratio per cent per cent uk trend capital to output ratio 1995 1999 2003 2007 2011 2015 1995 1999 2003 2007 2011 2015 sources : bea, oecd, ons and bank calculations. chart 6 : zombie firms rising in aes, falling in the uk ( a ) per cent of firms 12 % per cent of firms 30 % 10 % 25 % 8 % 20 % uk measure ( rhs ) ( c ) 6 % 15 % global measure ( lhs ) ( b ) 4 % 10 % 2 % 5 % 0 % 0 % source : european commission, ameco database ; imf, world economic outlook ; datastream worldscope ; the conference board ; bis calculations ; bureau van dijk and bank calculations. ( a ) zombie firms are defined as firms with a ratio of earnings before interest and taxes to interest expenses below one. ( b ) sample includes listed firms aged 10 years or more. shown is the median share across au, be, ca, ch, de, dk, es, fr, gb, it, jp, nl, se and us. ( c ) sample includes both publicly listed and private uk firms. only firms whose turnover reached £1 million in one of the past ten years are included. there are around 17, 200 firms per year