nominal activity and hence future inflation. second, over the next few years the transition to a higher national saving rate is likely to imply a switch of resources from consumption in the private and public sectors to investment and net exports. it will not be easy to achieve that while keeping inflation on track to meet the target and maintaining steady growth in output. it is very likely that, when the ons publish next week their first estimate of economic growth in the final quarter of last year, it will show that the uk economy has now had 50 consecutive quarters of positive economic growth. no other g7 economy avoided falls in output over that period. but we should recognise, as i hope the english cricket team does tomorrow, that reaching a halfcentury is no time for complacency but for renewed concentration. third, the ability to buy goods from abroad at ever lower prices has kept down inflation at home and sustained faster growth in real incomes and consumption - just as richard cobden and john bright, and the other founders of the manchester school, argued more than 150 years ago. and it is not just consumers who are paying less for these items. retailers are too. but the inflation rate of goods and services produced in the uk has been rising modestly for two years or so. that has been offset in large part by a fall in import prices. although we can influence the former we have little control over the latter. there would be risks to output and inflation in the medium term if we were to allow inflation of domestically produced output to rise above target unless we were confident that falls in import prices would indeed continue for some years. the lesson that we should not place excessive weight on one month ’ s figures is as true of inflation as it is of retail sales. in december cpi inflation was 1. 6 %. three months ago it was 1. 1 %. six months ago it was 1. 6 %. yet the broad outlook for the economy - a central view of continuing steady growth with low inflation - changed rather little during the period. the mpc cannot fine tune short - run movements in output and inflation. when the mpc published its inflation report in november, some commentators said that inflation was seemingly stuck at around 1 %, and that if growth were to continue at around trend then it was difficult to see why the committee ’ s central view was that inflation would pick up to the 2 % target looking ahead around two years or so. since then inflation has risen by half a percentage point

democratic legitimacy. the european parliament could, for instance, assemble in a variety of compositions. going for intergovernmental rather than federal solutions thus generates path dependencies. following the intergovernmental path in monetary policy would have led to the implementation of the uk ’ s proposal back in 1990 of parallel competing currencies rather than a single currency. the perceived lack of input legitimacy in the current institutional set - up also implies a high standard of output legitimacy ; that is, policy - makers need to generate outcomes that are in the voters ’ interest. if they fail to do so, they risk putting the stability of monetary union into question. rules versus discretion – a question of space and time? a monetary union is stable as long as its members find it more beneficial to be in that union rather than outside it. this stability is easier to achieve if everybody plays by the same rules. in a monetary union, economic well - being is not simply a domestic question. member states ’ economies influence each other, which is why a monetary union is more attractive if all its members are prospering. accordingly, europe ’ s decision - makers have given themselves common rules to guide fiscal and economic policies. bis central bankers ’ speeches these rules have repeatedly been broken. this suggests that while decision - makers favour a common set of rules to generate trust and credibility among member states, they have sometimes preferred more flexibility than the rules allow. in essence, we are facing an issue of time - inconsistent preferences : in the long run, governments have an interest in strict rules that foster trust and credibility among member states. in the short run, they might well prefer more discretionary decision - making that allows them to flexibly adapt their policies to circumstances. in addition, election cycles sometimes encourage myopic policy choices that are not necessarily in the union ’ s long - term interest. this is especially relevant in the eu ’ s multilevel governance framework with staggered election cycles at the various national and subnational levels. i respect that governments are bound by their voters ’ will. that will might well differ between jurisdictions in general, and between creditors and debtors in particular. at the same time, i see a risk that governments are making it too easy for themselves when they claim that they cannot make any further concessions at international level because of domestic political pressures. survey data shows that an unquestioning belief in opinion polls is not necessarily in the longterm interest of voters. for instance, support for the euro