doubted the uk ’ s commitment to monetary stability in the absence of a willingness to remove operational decisions on interest rates from the political arena. long - term interest rates contained a risk premium to reflect the possibility that the timing and magnitude of interest rate changes might reflect political considerations. the “ ken and eddie show ” was probably nearing the end of its run. and both principals needed their own show. so when gordon brown announced radical changes to the bank of england and the monetary policy framework two years ago they were widely welcomed because they offered the basis for a durable commitment to price stability. what, then, is the substance of the main reforms announced in may 1997? first, there is a clear and unambiguous objective for monetary policy – an inflation target of 2½ %, set by the government, with inflation defined as the increase in retail prices, excluding mortgage interest payments, over the previous twelve months – rpix inflation. second, decisions on interest rates are taken by a monetary policy committee, or mpc, comprised of nine individuals with expertise in monetary policy – five executive members of the bank and four non - executives – who operate on the basis of one person one vote. third, the process is characterised by a high degree of transparency and accountability, both to provide the public with explanations of the mpc ’ s actions and to hold members of the mpc individually accountable for their decisions. have these reforms made a difference to the uk economy? my aim this evening is to pose and begin to answer three questions about the mpc two years on. ( 1 ) what is the track record of the mpc after two years? ( 2 ) what has the mpc learnt during that period? ( 3 ) what are the challenges for the next two years? what is the mpc ’ s track record? because of the infamous “ long and variable ” lags between changes in interest rates and their impact on inflation, the mpc does not yet have much of a track record in terms of inflation outturns. but since the target given to the mpc is for inflation, let me start there. between june 1997 and march 1999 ( the latest month for which inflation has been published ) rpix inflation averaged 2. 7 %. during that period, inflation ranged from a low of 2. 4 % to a high of 3. 2 %. over the past nine months it has remained within 0. 2 percentage points of the target, a remarkable degree of stability. it is

a strong hand in influencing. alignment with international standards supports competitiveness because it makes it easier for international firms to conduct business in the uk. it avoids inefficiencies that would arise from international firms having to comply with a different set of rules when they operate here. it also helps protect the uk ’ s financial system from the risks that originate outside of this country. such risks will inevitably arise when a country ’ s financial system is large and open. to use my earlier analogy as our immune system needs to protect us from infection from elsewhere, and to stop us transmitting infections to others, we need global prudential defences to keep us all healthy. dare i also say that financial services centres are more competitive when their regulators have a good reputation amongst their peers – for independence, strength, and effectiveness built on technical competence and understanding of financial markets. some of my audience may be surprised that there is a concept such as regulatory innovation! but there is such a thing and uk regulators have a good reputation for it, recognised for example by the imf in its recent financial sector assessment of the uk. [ 14 ] protecting and enhancing regulators ’ reputation benefits global firms operating in the uk and uk firms operating overseas, not least through uk influence in global standard - setting bodies. for one thing, it makes it more likely that other regulators will allow firms in their jurisdictions to operate in the uk in a way that maintains deep interconnections with its financial system. another reason that our new objective should not encourage risky bets on regulatory standards is that we all remember what happens when such bets backfire. over the last thirty years we saw the spectacular unravelling of the bank of credit and commerce international, a subsequent small banks crisis, the equally spectacular collapse of barings, and problems in the insurance sector including the closure of equitable life. and that was before we even got to the historic crisis of 2007 - 08. in case anyone has forgotten, government support to the financial system peaked then at almost £1. 2 trillion. [ 15 ] the economic damage was immense and enduring. [ 16 ] good prudential regulation – like a good immune system – remembers previous crises so that it can tackle similar ones when they come along in future. but to reiterate, strong regulation also needs to be responsive to the needs of the uk and to accommodate beneficial innovation. while i do not believe there is a fundamental tension between strong regulation and competitiveness for a global financial centre like the uk,