we have had more than our fair share of luck in achieving this outcome. there may well be some truth in that. but i'm not sure that we should be too surprised. market and survey evidence shows that people are now clear that the mpc will do what it takes to keep inflation on track. and that expectation is factored into their own behaviour, whether it is negotiating wages, setting prices, or deciding how much to borrow and consume. all of that goes a long way towards ensuring that inflation is well anchored to the target. of course, from month to month, inflation will still vary somewhat around 2½ %. in recent months, rpix has been a little below target, and there has even been some interest in whether it might reach 1. 5 %, the point at which the governor would have to write a formal letter to the chancellor explaining what was going on. the pick up of inflation to 2. 6 % in january has silenced this discussion, at least for the time being. we pore over the reasons for such developments in enormous detail at the bank. but in the bigger scheme of things these month - to - month movements are quite small, and are i hope likely to play very little - if any - role in the key decisions of your businesses, or those you represent. people often ask if our relative success at targeting inflation has come at a cost in terms of lost output or employment. it is increasingly accepted, i think, that there is no such trade - off in the long run. and, looking at recent data, it is hard to see a trade - off even in the short run. unemployment remains close to its lowest level for a quarter of a century - a trend seen in northern ireland just as much as in the uk as a whole. and uk gdp has now risen for 38 consecutive quarters ( albeit in the case of 2001 q4, only just! ), the longest continuous expansion since post - war records began. achieving low and stable inflation is the best contribution that monetary policy can make to the wider economic goals of sustainable growth and employment. having an inflation target certainly does not mean that we ignore real activity. we have discretion over how rapidly we try to bring inflation back to target when and if it diverges from 2½ %. and we regularly publish our best estimate about the likely future path of growth up to a two year horizon. but the aim of policy is clear - we do what is necessary to keep inflation on

policy – be taken into account in setting monetary policy, which is the primary and most effective tool of demand management. taken together with the synergies from sharing information and analysis, these are strong arguments for operating monetary policy and prudential policy in the same institution. in the short time the bank has been responsible for both, we have already seen the benefits of operating them in a coordinated way. for example, our forward guidance framework for monetary policy reflects a clear division of responsibilities. although monetary policy has an important role to play in mitigating financial stability risks, it does so only as a last line of defence. this is important because vulnerabilities can emerge from a long period of unusually low interest rates, as complacency sets in about the future path of policy and asset prices. there have been signs of such behaviour across the housing markets in advanced economies. in anticipation of similar risks arising in the uk the bank ’ s mpc and fpc have met jointly to review them. the fpc has identified a graduated range of macroprudential tools available to it for a coherent, proportionate response to these risks, and has taken initial, prudent steps. as the housing market evolves and macroprudential policy responds the fpc and mpc will continue to work together to understand the collective impact of measures on residual vulnerabilities and macroeconomic outcomes. that co - ordination, the shared monitoring of risks, and clarity over the fpc ’ s tools allows monetary policy to keep bank rate as low as necessary for as long as appropriate in order to support the recovery and maintain price stability. for example expectations of the future path of interest rates – and hence longer - term borrowing costs – have not risen as the housing market has begun to recover quickly. macroprudential and microprudential policy there is also a natural complementarity between macro and microprudential policy because, in essence, macroprudential policy uses prudential policy tools for macroeconomic ends, specifically the mitigation of risks that could in time undermine price and financial stability. 12 so the two will often operate through the same channels – albeit towards different objectives. see adrian and shin ( 2010 ), jimenez et al. ( forthcoming ). for example, the basel iii framework for capital regulation combines microprudential and macroprudential elements. tougher minimum requirements and institution - specific add - ons will be the responsibility of microprude