andrew bailey : modern challenges for the modern central bank perspectives from the bank of england speech by mr andrew bailey, governor of the bank of england, at the lse german symposium, virtual event, 5 february 2020. * * * it is a great pleasure to participate in the lse german symposium, and congratulations to the organisers for such an interesting programme. i want to take the opportunity today to step back a little and offer some thoughts on the context and framework of monetary policy. it is fast approaching twenty five years since the uk decisively changed its monetary policy framework and embraced the idea of an independent central bank with a mandate to maintain price stability in the form of an inflation target. now, 25 years may not seem long in the broad sweep of history, but the history of uk monetary regimes points to a quarter of a century representing a relatively long - established one. long may it last, because it has been successful, and it has delivered the much desired price stability. but the context in which policy is made does not stand still. the first decade of the mpc was with hindsight very benign – the impact of demand shocks to the economy was small, and supply shocks were typically in a favourable direction. the next decade and more has been quite different, with much larger shocks – a mix of both demand shocks and more adverse supply shocks. this period has included a global financial crisis, a global pandemic, and in the uk the decision to leave the european union. monetary policy has had to adapt to this world of larger shocks, in an environment where the trend to sustained lower equilibrium interest rates around the world has made the so - called effective lower bound a very pertinent issue. as a first observation, therefore, the task of monetary policy has moved from being a choice ( albeit not an easy one ) on a single dimension ( the official interest rate ) to a more multi - dimensional choice which also involves decisions on which tools to use, and which tools to develop – have “ in the box ” – for possible future use should the need arise. there are important issues of substance here. close to the lower bound, the transmission of policy tends to be less effective – not redundant or worthless, but nonetheless less effective. but this does not make monetary policy pointless or unnecessary. there are also important challenges to signalling that follow from this greater element of multidimensionality of decisions. so - called toolbox decisions should not contain signals on preferences for the actual setting of

, and that news is inherently difficult to forecast. each month the committee makes a careful assessment of the outlook for inflation, and it is that which will guide our decisions on the appropriate level of interest rates. it is over 3 1 / 2 years since interest rates were last raised - the longest such period since bank rate was held constant at 2 % through the 1940s. at some point reducing the present degree of monetary stimulus will be necessary in order to keep inflation on track to meet the target. the timing of any such decision will reflect our judgment of the outlook for inflation. listening to our business contacts and learning from our visits around the uk is an important input into that judgment. to retain the unrivalled degree of stability that we achieved during the “ nice ” decade will be an even more difficult challenge for the future. the present monetary and fiscal frameworks provide a seaworthy policy vessel, but, as all sailors know, fog, especially statistical fog, can be dangerous. so we must hope that lady luck will continue to smile on us.