that direction. rather, the economic data last summer were telling us how sharply the economy had contracted in late 2008 and the first half of 2009 both at home and abroad, and how sharply unemployment had risen as a result. a strong theme underpinning the analysis of both the may and august inflation reports last year was that uk inflation was expected to be pushed significantly below target by a large margin of spare capacity. these reports showed fan charts in which inflation was much more likely to be below the target than above it throughout the two to three year horizon over which the bank produces its forecasts. the central projection in both inflation reports we produced last summer suggested inflation would fall to around 1 % or just above in the first half of 2011 and to struggle to return to the target after that. this was the economic backdrop against which i and other members of the mpc took the key decisions to put in place the monetary policy settings which we currently have in place today : sharp falls in demand and rises in unemployment ; great uncertainty about recovery prospects ; and a general expectation of persistent below target inflation. the bank was not alone in its prognosis – this was the general view of the forecasting consensus last summer. a year on, however, the economic situation has changed. there are still many uncertainties about future economic prospects. but there are four features of the current position of the economy which are now very different from the situation we faced last summer – the world economy has bounced back, the uk economy is also recovering, the margin of spare capacity does not appear to be as large as we had expected a year ago, and inflation has run above target rather than falling below it. before moving on to talk about monetary policy, i will briefly discuss these four factors in turn. recovery in the world economy over the past year or so, the world economy has bounced back strongly, led by growth in asia but also supported by recovery in the us and a more gradual turnaround in the european economy. consensus forecasts for 2010 growth in the three main regions of the world economy have improved significantly over the last twelve months, as chart 1 shows. the us economy is now projected to grow by over 3 % this year, and gdp in japan is also projected to rise at a similar rate – very strong by comparison with its recent poor growth performance. true, the european economies appear to be lagging behind in this global recovery. but even is this region of the world economy, the growth outlook has improved compared with

in 1961 to 0. 36 in 2008 in the uk, and from 0. 39 to 0. 46 over the same period in the us, according to data collected by atkinson and morelli ( 2014 ). those data show this to be a common pattern across many advanced economies. in emerging markets, gini coefficients remain high relative to the average for oecd countries, and rose between the 1990s and 2000s for india, china and the russian federation, though falling for brazil ( oecd, 2011a ). the share of income received by the top 1 per cent of the population has also risen since the 1980s across many industrialised countries, including australia, canada, the united kingdom and the united states ( atkinson and morelli, 2014 ). see autor, katz and krueger ( 1998 ) and autor, katz and kearney ( 2008 ). for example the last 60 years have seen us returns to education rise despite a large increase in the supply of more educated workers. and there is evidence that increases in the employment of more skilled workers between the 1970s and the 1990s were greater in more computer intensive industries. bis central bankers ’ speeches now is the time to be famous or fortunate. there is also disturbing evidence that equality of opportunity has fallen, with the potential to reinforce cultural and economic divides. for example, social mobility has declined in the us undercutting the sense of fairness at the heart of american society. 7 intergenerational equity is similarly strained across the advanced world. social welfare systems designed and enjoyed by previous generations may prove, absent reform, unaffordable for future ones. 8 and environmental degradation remains unaddressed, a tragic embarrassment now seldom mentioned in either polite society or at the g20. to maintain the balance of an inclusive social contract, it is necessary to recognise the importance of values and beliefs in economic life. economic and political philosophers from adam smith ( 1759 ) to hayek ( 1960 ) have long recognised that beliefs are part of inherited social capital, which provides the social framework for the free market. social capital refers to the links, shared values and beliefs in a society which encourage individuals not only to take responsibility for themselves and their families but also to trust each other and work collaboratively to support each other. 9 so what values and beliefs are the foundations of inclusive capitalism? 10 clearly to succeed in the global economy, dynamism is essential. to align incentives across generations, a long - term perspective is required. for markets to