a little bit of stodginess? speech given by sir jon cunliffe, deputy governor financial stability, member of the monetary policy committee, member of the financial policy committee and member of the prudential regulation committee cumbria chambers of commerce, kendal friday 13 july 2018 all speeches are available online at www. bankofengland. co. uk / speeches “ in my view both as a citizen and as a policymaker, a little stodginess at the central bank is entirely appropriate ” alan blinder ’ s 1999 advice to central bankers, quoted above, was not, i am pleased to say in these fitness conscious times, an injunction on the appropriate nutrition for monetary policy makers. rather, it was advice on how to respond to uncertainty or, to be precise, the need for caution when faced with a particular type of uncertainty – uncertainty about the impact of monetary policy on the key variables in the economy it seeks to influence. but i would like today to look at the case for ‘ stodginess ’ when faced with uncertainty more generally about possible changes in how the economy works and the ‘ model ’ of the economy that policymakers necessarily have in their minds. uncertainty, as i have noted before is the natural environment of monetary policy. there is a large academic literature on the optimal way for policy to deal with different types of uncertainty. but i would like to look at these issues first in the context of my time on the mpc and then in relation uk monetary policy going forward. the mpc since i joined it at the end of 2013 certainly appears to have been pretty consistently stodgy in the sense of slow moving. we have moved policy twice over that period. and one of those moves was a response to an exceptional and unprecedented exogenous event – the brexit referendum. only one move, the rate increase last november can be thought of as usual, ‘ bread and butter ’ monetary policy. there has been one or more votes for changing policy in only 22 of the 49 meetings. when i compare this to 2002 to 2007 - - my period on the committee as the treasury representative - - the contrast is striking. over that period, the committee moved policy 12 times and with one or more votes for changing policy in 41 of the 56 meetings. this lack of action from the committee since i joined it as a member in 2013 was certainly not the reflection of lack of developments in the uk economy. from mid 2013 to early 2015, unemployment dropped like

a stone – by 2pp in the space of 18 months, the fastest rate for 25 years. at the same time, growth was picking up from close to 1 % to about 3 %. blinder all speeches are available online at www. bankofengland. co. uk / speeches nor was it the result of lack of advice. as mark carney has recently pointed out, the pre - crisis mpc had always tightened policy in response to accelerating growth and firming business confidence. with pre - crisis rules of thumb and the boe ’ s pre - crisis reaction function in mind, there were many and loud calls for pre - emptive tightening to prevent the build up of inflation pressure. the committee ’ s reluctance to tighten was of course motivated by the sizeable output gap and the need to allow a stimulative policy stance more time to squeeze out slack in the labour market – or as one committee member put it at the time “ don ’ t just do something, stand there … ( and think ) ”. but underlying this, there were more fundamental doubts about what had happened to the supply side of the economy during the crisis, particularly around the labour market and around the collapse of productivity growth. it was these concerns that underlay the committee ’ s decision, shortly before i joined, to give forward guidance that it would not consider changing policy until unemployment fell to a certain level. as the expansion progressed from mid 2013 towards the brexit referendum in 2016, evidence grew that the supply side was not returning to pre - crisis norms. unemployment reached 5 % - the pre - crisis estimate of the natural rate - in early 2016 without any hint of upward pressure on pay. pay growth serially undershot the mpc ’ s forecasts ( chart 1 ). at the same time, as the expansion progressed, it became disappointingly clear first that the uk would not recover any of the productivity growth lost in the crisis and ensuing recession and then that it would not recover anything like the pre - crisis rate of productivity growth ( chart 2 ). i have noted before the much greater degree of attention to the supply side given by the post - crisis mpc relative to its pre - crisis predecessors. this is clearly accounted for by the much greater inability to forecast the evolution of supply and its impact on inflation ( charts 3 & 4 ). mark carney ’ s recent speech illustrates that bank rate might have risen by 2 - 3 percentage points between august 2013 and the end of 2014