the scale of our asset purchase programme to £175 billion. that level of bank rate and scale of asset purchases were maintained at the mpc meeting earlier this month. you may have notice that at our meeting in august there was a split vote amongst the committee. a majority of the committee – including myself – voted to increase the asset purchase programme to £175 billion, whereas a minority preferred a larger expansion to £200 billion. it is important not to make too much of this difference ; all members were of the view that a further degree of monetary stimulus was needed to meet the inflation target. my own judgment was that the uncertainty surrounding both the economic outlook and the effects of asset purchases made it difficult to have a strong view as to the relative merits of increasing the asset purchase programme to £175 billion or £200 billion. indeed, the inflation projection that was published in the august inflation report suggested that either policy was consistent with hitting the inflation target, depending on the future path of interest rates. for me, the decision came down to an assessment of the risks of doing too much versus the risks of doing too little. with regard to the potential risks of doing too little, my main concern was that nominal demand would not recover to a level consistent with hitting the inflation target. my main worry with doing too much stemmed from the uncertainty associated with using asset purchases as a policy instrument. we do not have much experience of conducting monetary policy via asset purchases and there is a risk that their effects will be transmitted through the economy in ways we do not predict and do not want. for example, the substantial injections of liquidity might result in unwarranted increases in some asset prices that could prove costly to rectify. i placed considerable weight on both risks and thought that they were best balanced by an expansion of the programme to £175 billion. i am hopeful that we have started along the road to recovery. the journey is likely to be long and not without difficulty. but the monetary policy committee stands ready to do whatever it takes to ensure that the economy moves into better balance and inflation remains on track to hit the target. references bakhshi, h ( 2000 ), “ the sensitivity of aggregate consumption to human wealth ”, bank of england working paper no. 108. benito, a., waldron, m., young, g. and zampolli, f. ( 2007 ) “ the role of household debt and balance sheets in the monetary transmission mechanism ” bank of england quarterly bulletin

fall in corporate bonds spreads, a rise in equity prices, and the fall in three - month libor back towards expected bank rate. 12 in addition, the mpc ’ s continuing strong commitment to support the economy and therefore achieve of the inflation target over the medium - term has had a positive effect on confidence. most indicators of consumer confidence have been improving fairly steadily from low points in early 2009, as have indicators of business confidence. a significant part of the transmission mechanism has been via the rise in the prices of riskier assets. as yet, i don ’ t consider the evidence suggests that this rise in asset prices has gone too far, and therefore do not believe that this has become another risk to future economic stability. rather, my concern is that this channel might become less powerful if quantitative easing were to be extended, as confidence effects might be less apparent, and there might be reluctance to engage in further portfolio rebalancing as the price of risky assets rose. this could prove a concern, given that there are still some risks on the downside to the path of economic activity, including a continuing weakness in the world economy, particularly the eu. credit conditions also remain a concern. the cost of credit for households remains high relative to bank rate ( chart 4 ), and there is still evidence from smaller firms that credit is either difficult to obtain or unacceptably costly. banks ’ own funding has become a little less costly, but the major uk banks still face a considerable funding challenge over the next few years, as well as uncertainty about how much capital they will be required to hold in the longer - term. however, there are grounds for optimism from recent data that the recovery is broadly on track. gdp in the fourth quarter of 2009 is now estimated to have grown by 0. 3 % with growth in consumer spending. household balance sheets have already been strengthened. employment trends have remained surprisingly robust, and firms ’ employment intentions continue to recover from the low point early in 2009 in the bulk of the business surveys. i don ’ t think it is yet possible to be confident in the pace of recovery, and still expect the path to be bumpy. but some of the severe downside risks have diminished. these impacts have recently been set out very effectively in miles ( 2010 ). conclusions as this is my final formal talk as an mpc member, it is a good opportunity for me to say that it has been a real privilege to serve on the committee for such a long period