: it sets out in clear and simple terms what the partnership is seeking to achieve and it assesses progress against measurable objectives. it has the credibility that comes from being grounded in serious analysis of the issues confronting merseyside. and it has benefited from the advice of an independent panel of distinguished experts. there is no doubt that the performance of monetary policy has benefited greatly from setting clear objectives and measuring progress in a transparent and open way. the uk first adopted specific targets for inflation over a decade ago, and at the same time the bank launched a new quarterly inflation report to share its thinking about the economic prospect. in 1997, that approach was developed, and its credibility significantly enhanced, when gordon brown gave responsibility for setting interest rates to an independent monetary policy committee, consisting of outside experts as well as bank of england officials. by any past standards, the period since 1992 has seen a quite remarkable degree of stability, with low and stable inflation and a record period of sustained positive output growth and steadily improving employment. better monetary policy is not the whole story ; but it can share some of the credit for that success. how does monetary stability like this benefit an area like merseyside? the bank of england ’ s job is to control inflationary pressure in the country as a whole. what we do is set interest rates to keep the total demand in the economy in line with the economy ’ s productive capacity. we don ’ t – and can ’ t – favour any section of the economy, or the country. merseyside is a region facing deep seated economic and social challenges, stemming from the decline in its traditional industries. in recent decades, many well paid jobs have gone for ever, and in the new world, earning good money has required a very different set of skills. that kind of change wasn ’ t just a challenge to individuals and their families ; it threatened the viability of whole communities. low inflation is not in itself a solution to problems like this. but it is a pre condition for solving them. merseyside had bad luck to be confronted with more economic change in the second half of the twentieth century than most people could cope with at the time. liverpool never lost its sense of humour, though there were times when it came close to losing its way. sadly, you can ’ t laugh your way out of economic decline. high inflation and economic instability fostered the wrong climate for taking the long term decisions that were needed to give merseyside a new future. the

levels of economic inactivity and social deprivation that you are still grappling with today are in part legacies of the 1970s and 1980s, when the sharp ups and downs in inflation, interest rates and national output made it much harder to adapt to structural economic change at the regional level. but more recent success in delivering low inflation and economic stability has created a much better climate for you to succeed. economic regeneration can ’ t get off the ground without inspired local leadership, and committed local partnerships. but even with them, it is a long haul to make the investments in infrastructure that modern businesses expect. and so called soft investments – in people, skills, and communities – are even more of a challenge. low inflation and low nominal interest rates matter to you because they provide a sound foundation for just this kind of long term planning. and business needs a climate of stability if it is to commit to the investment that ’ s needed to revitalise an area. we know that it is entirely possible to transform old urban areas – there are plenty of inspiring examples from london docklands to berlin and baltimore, and if liverpudlians ever doubted it, nowadays they need go no further than albert dock. but it takes long term commitment. the key findings in today ’ s merseyside economic review provide convincing evidence that liverpool has turned the corner – with faster growth in the core city than any other english city and jobs growth more than double the national average. manufacturing remains important and there is still a strong automotive supply industry, which is high tech these days, but the real growth sectors are tourism, leisure and modern services. increasingly, for those who acquire the right skills, the jobs are there – a picture that fits with a national labour market where unemployment is now as low as it has been in three decades. how confident can you be that we will continue to deliver the stability that is our contribution to your future success? our latest inflation report, published last week, paints a favourable picture for the next few years, with continuing steady growth and low inflation. if you trust the mpc to do its job, you might feel reasonably safe in basing your decisions on that outlook. but those of us on the committee can ’ t afford to take it for granted. so you may be reassured to hear that we spend most of our time worrying about the risks that could throw the uk economy off course ; and arguing about how to respond appropriately. so what are the main risks facing us now? last year