already left the scene “ to get a bit of rest [ in quebec ] ”, he said, “ for i have had a very hard time of it lately and i have not been so well as i would like to be. ” 1 however tempting, i will lean on canada not for restoration but for a nautical analogy to describe how we can address the challenges we now face. rather than appeal to the stately duchess of york on which my predecessor sailed, i will look to the trusty canoe – a craft that can navigate the most rapid and treacherous waters … provided its paddlers work in sync. those economic currents are flowing swiftly, with the economy expanding at an annualised rate of 4 % and jobs growing at a record pace. 2 but there are rapids ahead, with old imbalances persisting and new ones emerging. the economy is still over - levered. the housing market is showing the potential to overheat. and the current account deficit is now at a record level. navigating these hazards requires close coordination between all those in the boat ; that is, between fiscal, monetary and prudential authorities. tonight i want to explain the bank ’ s contribution to delivering a durable expansion characterised by balance in the macroeconomy, the housing market, and the financial sector. before doing so, i would like to join the chancellor in paying tribute to two individuals. the first is sir david lees, who as chairman of court has overseen the transformation of the governance and responsibilities of the bank. david, i am extremely grateful for your support during my first year as governor. i ’ m also enormously grateful for the wise counsel of charlie bean during the past year. always working, charlie is tonight discharging his duties as president of the royal economic society. throughout his career, at the treasury, in academia and at the bank, charlie has been a leading thinker and practitioner in the pursuit of macroeconomic balance. internationally he has inspired countless policymakers, myself included. on behalf of all colleagues past and present, i would like to echo the chancellor by thanking charlie for his exceptional period of public service and the enormous contribution he has made to the economic well - being of this country. macroeconomic balance the uk economy is currently unbalanced internally and externally. internally, there is wasteful spare capacity – an output gap – concentrated in the labour market. the monetary policy committee ( mpc ) currently estimates this gap to be around 1 – 1½ %

of gdp, though we caution against false precision as there are wide confidence bands around this central view. the mpc ’ s current guidance makes clear that we will set monetary policy to meet the inflation target while using up that spare capacity. this has implications for the timing, pace and degree of bank rate increases. there ’ s already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced. it could happen sooner than markets currently expect. as reported in the montreal gazette, august 17, 1931. the financial times of the same day reported norman as saying “ i feel i want a bit of a rest, because i have had a very hard time lately. i haven ’ t been quite as well as i would like, and i think the trip will do me good ”. bank staff project annualised growth of 4 % for the current quarter. that incorporates expected upward revisions to early official estimates. bis central bankers ’ speeches but to be clear, the mpc has no pre - set course. the ultimate decision will be data - driven. at this point it is safest to conclude, as the mpc has, that there remains scope for spare capacity to be used up before policy is tightened and that a host of labour market, capacity utilisation and pricing indicators should be watched closely to determine how that slack is evolving. growth has been much stronger and unemployment has fallen much faster than either we or anyone else expected at last year ’ s mansion house dinner. so far this has been largely matched by indicators which suggest that there is more supply capacity in the labour market than we had previously thought. as a result of these two welcome developments, despite rapid jobs growth, pay pressures and unit labour cost growth have remained subdued. 3 the mpc expects the rate at which slack is being eroded to slow during the second half of this year as output growth eases and productivity growth recovers. but thus far there are few signs of a deceleration in output growth. and a challenge in deciding when to begin normalising policy is that actual output can be observed but potential supply cannot. that is why the mpc is monitoring a broad range of indicators including coincident ones such as the behaviour of wages and prices. of course navigating the upcoming bend in the river isn ’ t the end of the journey. the mpc has rightly stressed that the timing of the first bank rate increase is less important than the path thereafter – that is, the degree and