bank of england that was the year that was − speech by dave ramsden given at bank of england watchers ’ conference organised by the money macro finance society and king ’ s business school at king ’ s college london 24 november 2022 bank of england speech thank you for the invitation to speak today. i am particularly pleased that i have close links with the two institutions, the money macro and finance society and kings college london, who have organised this first bank - watchers ’ conference. in the spirit of the sixty year old tv programme that inspired my title i want to give my personal review of why the economy, and in particular inflation, turned out to be very different over the past year, and suggest some potential consequences for the mpc ’ s approach to forecasting the economy and setting policy to hit the 2 % inflation target. as a member of the mpc i hope to be able to do justice to how our thinking has evolved but i should stress at the outset that these are personal observations, which will nevertheless hopefully help set the scene for discussions at this conference. in my other monetary policy speeches this year i ’ ve focused on the impact of shocks. today i ’ m going to look more through the lens of the uncertainty generated by those shocks, which has made the course of the economy in general and inflation in particular increasingly hard to predict1. uncertainty has come not just from new shocks hitting the economy, most notably huge increases in energy prices, but also from unexpected developments, particularly in the labour market, as well as from other sources, like the on - going impact of brexit and the pandemic. economic uncertainty can be illustrated in various ways. chart 1 shows a market - based measure of volatility two years ahead, the horizon for monetary policy, which has been on a sustained and steeply rising trend over the last year, and spiked very recently at a much higher level even than during the global financial crisis. without wishing to downplay the audience today, the bank - watchers who matter most for whether the mpc meets its target of getting inflation back to 2 % are households and businesses. uncertainty is impacting directly on them, undermining their confidence to make decisions and plan ahead, adding to what is already a very challenging economic situation in the face of the cost of living crisis and tightening financial conditions. in economics, the concepts of ‘ risk ’ and ‘ uncertainty ’ are usually distinguished using the terminology of frank knight ( 1921 ). risk refers

any regulator - nor is it in the interest of society - to give shocks and kill financial institutions ; its primary concern is rather to rescue ailing institutions, help restore their financial soundness and sustain overall financial stability. breaking problems into small pieces and then managing the pieces, more so if the problems stem from the highest level of decisionmaking in a financial institution, is the surest way to a crash. the regulator ’ s responsibility in such cases is to manage the dynamics, not the pieces. no regulator would ever envy the plight of an ambulance crew at the scene of a car crash. i regret having to use metaphors for i am bound by a duty of confidentiality even in respect of the ‘ gentlemen ’ delinquent borrowers. institutional shareholders or any individual shareholder in any enterprise, be it a financial institution or a non - financial enterprise, are expected to be the first and foremost watchdog of its operations. the watchdogs are supposed to look after the best interests of the enterprise rather using their authority to advance their own agendas. as is generally observed the sinews of good behaviour can hardly be reinforced by regulation. financial regulations are not designed to catch deceit but to create markets and promote good corporate habits - habits that are indeed transparent to savers and investors who can vote with their money and why not with their feet, if the need arises. the dissemination of reliable information to the public at large and the ability to trust each other are the pillars of market - based economies. a former professor at harvard rightly observed that trust constitutes a decisive ingredient of a society for it to be a successful capitalist society. people, who do not trust their neighbours, do not trust other groups, do not trust distant people, cannot trade among themselves. the economy is reduced to the level of a bazaar economy. the regulator needs to be trusted. i am absolutely certain that none of us would ever wish our economy to be reduced to a bazaar economy. as i said earlier, we have reached the tail end of the clearing process. we are now in the process of constructing a framework for the implementation of basel ii, taking into account the specificities of our economy. the year 2006 will quite likely be marked by acquisitions in the banking industry. we have had a number of expressions of interest for take - overs from several banks of good reputation. despite a few consequential setbacks beyond our control, business confidence in the economy is not as bad as is being painted. once