, the lowest for a generation, and never deviated more than one percentage point from that average. unemployment fell from almost 10 % to around 3 % on the claimant count, its lowest level for almost three decades, and has now been virtually unchanged for twenty months, by far its longest period of stability. the terms of trade moved in britain ’ s favour, raising our national standard of living. and output has risen in every single quarter since the middle of 1992, something that is true of no other g7 economy. why were the 1990s so successful? and can that success continue? four features of our economy lie behind this improved performance. first, the new monetary framework - based on an explicit target for inflation, a high degree of transparency, and, since 1997, independence of the bank of england made it clear to everyone that monetary policy was, and would continue to be, targeted on maintaining low and stable inflation. second, a substantial fiscal consolidation turned a deficit of 8 % of gdp in 1993 into a sustainable position for the public finances based on a set of clear rules for government debt. third, a continuing programme of supply - side reforms, over a period of 20 years, made it possible to reduce unemployment without generating higher inflation. fourth, although the unexpected twists and turns of the world economy did pose real challenges to monetary policy, especially in the latter half of the decade, those shocks tended to average out over time rather than cumulate in either an upward or downward spiral. in other words, the economic surprises alternated between good one year and bad the next, rather than adding up to “ one damn thing after another ”. in that sense, lady luck smiled on us. of course, we were not alone in enjoying the 1990s. in the united states growth was so rapid that at least two authors wrote books entitled “ the roaring nineties ” and another chose the title “ the fabulous decade ”. in contrast, continental europe experienced slow growth and heart - searching over structural reforms. as with much else, our economic performance lay somewhere between the excited exuberance of the united states and the relative disappointment of continental europe. so the uk experienced a non - inflationary consistently expansionary - or “ nice ” - decade ; a decade in which growth was a little above trend, unemployment fell steadily, and, supported by the improved terms of trade, real take - home pay rose without adding to employers ’ costs, thus allowing consumption to grow at above trend rates without putting upward pressure on

inflation. will the next ten years be as nice? that is unlikely. the terms of trade will probably not rise as much in future as they have in recent years - about 10 % since 1996 when sterling started to appreciate - not least because sterling ’ s effective exchange rate has fallen by around 7 % since the turn of the year. moreover, there is no longer the margin of spare capacity that has provided a buffer for policy over much of the past decade. so when shocks, as they will, hit our economy it is almost inevitable that there will be somewhat greater volatility of both output and inflation than the remarkable stability to which we have become used in recent years. but the case for realism about what we should expect is not a case for pessimism ; rather the opposite. the macroeconomic framework in this country is sound and proven. and the real benefit from britain ’ s new - found position of macroeconomic stability is that it provides an opportunity to improve our supply performance - to boost productivity, education and enterprise in order to generate the resources needed to raise living standards. such improvements are, in the long run, both more important and more glamorous than the rather dull and repetitive role of the bank of england in trying to maintain macroeconomic stability. the bank of england is only the referee ; you are the players. unlike countries such as the united states, which has witnessed a significant and seemingly durable rise in productivity growth, in britain the underlying rate of increase of output produced for each hour worked has remained broadly stable. we can take some comfort from the latest revisions to the national accounts which show that productivity growth was not as depressed as previously thought, but it still remains close to its long - run trend of around 2 % a year, insufficient to close the productivity gap between ourselves and our major competitors. of course the bank of england has to look to improve the quality and professionalism of its own activities. and, together with the court of the bank, the new executive team is exploring ways to enhance the effectiveness of our operations. improving our market intelligence, refocusing our financial stability role, and making central services more professional, are examples of ways in which the bank aims, in all its activities, to pursue standards of excellence, as it has in monetary policy. there is one additional area where change could prove beneficial. after the monetary policy committee decides on the level of interest rates, that decision must be implemented in the money markets. the bank will be carrying out a