##bn of sterling corporate bonds in the secondary market as part of a package of measures designed to ease monetary conditions following the referendum on leaving the european union. this so - called ‘ corporate bond purchase scheme ’ ( cbps ) was increased to £20bn in 2020, in response to the economic impact of covid. it ’ s therefore fair to ask : as an investor in corporate assets in our own right, should we be taking steps to support the achievement of net zero? the bank as investor : reconciling monetary policy goals and market mispricing the first point to underscore is that the cbps began as, and will remain, a monetary policy tool. that means that the overall target stock will continue to be set by the mpc to achieve its inflation objective. so, in due course, when the economic outlook allows, the fund will unwind. we do not expect to be a permanent investor. to achieve the policy goals of the scheme, eligible bonds must be issued by non - financial companies making a material contribution to uk economic activity. and to protect public money, the bank imposes controls on credit quality, portfolio concentration and other financial risks. 12 these elements of the scheme will not change. a more interesting question relates to the composition of the cbps. up to now, we have aimed to replicate the structure of the sterling corporate bond market itself. we do that by dividing up our purchases across sectors according to the amount of debt outstanding ; and within sectors using competitive reverse auctions. the rationale for allocating purchases in this way has been to minimise the impact of the cbps on relative borrowing costs across sectors and firms. this approach, sometimes called ‘ market neutrality ’, has obvious attractions for central banks charged with setting monetary policy for the economy as a whole. but it has quite a striking implication for the carbon footprint of the cbps portfolio. chart 5 compares the proportion of the cbps held in each sector with the contribution of that sectoral holding to the total carbon footprint of the portfolio. and you can immediately see that some sectors – notably the utilities : electricity, water and gas – contribute more to the cbps ’ carbon footprint than their portfolio share might suggest. others by contrast contribute substantially less – eg the consumer, communications, property and finance sectors. a full set of eligibility criteria can be found here : https : / / www. bankofengland. co. uk / markets / market - notices / 2016 / asset -

a period of extraordinary volatility in the economy and at the same time we managed to absorb a 25 % fall in sterling ’ s effective exchange rate, something that historically would have created far more serious inflationary problems. the key question is whether the current inflation rate signals that inflation will persist above target. the mpc is conscious that the continuing high level of inflation poses the risk that inflation expectations may move up. and it may be some while before inflation returns to target. but at present, there is also a risk – at least as large – that once the temporary upward influences on inflation dissipate, the influence of spare capacity in the economy will push inflation below the target. consistent with that possibility, a range of other indicators – growth in broad money, pay, and the pressure of demand on supply, that together are likely to be a more reliable guide to inflationary pressure looking ahead – all remain extremely subdued. so not only can monetary policy play a role in smoothing the rebalancing process, it needs to do so if the outlook for inflation is to remain in line with the 2 % target in the medium term. because there are risks on both sides of the outlook, reasonable people can disagree about the monetary policy judgement. in recent speeches, different mpc members have emphasised upside and downside risks to inflation. after the event, no doubt whichever risk has crystallised will be described by the critics as inevitable. unfortunately, we do not have a crystal ball. so in setting policy today the only coherent approach is to balance those two risks. the next decade will not be nice. history suggests that after a financial crisis the hangover lasts for a while. so the next decade is likely to be a sober decade – a decade of savings, orderly budgets, and equitable rebalancing. our prospects remain closely linked to developments in the rest of the world. but we can influence the outcome, with monetary policy still a potent weapon to ensure that the amount of money in the economy is growing neither too slowly, as in the recent past, nor too quickly so as to reignite inflation. with that, and the inspiration provided by the black country ’ s example of how to adapt to economic change, i am sure of one thing. a sober decade may not be fun but it is necessary for our economic health.