Mr Carney reviews the conduct and performance of inflation targeting during his time as Governor. This period, which roughly coincides with the post-crisis recovery and which has seen more than its share of shocks and structural developments, provides some insights to the ability of inflation targeting to deliver price stability and support macroeconomic outcomes.
Mr Carney also suggests that, so far at least, inflation targeting has proven to be a framework for all seasons, an essential part of a robust foundation for economic prosperity.
The flexibility in the UK monetary policy framework means that the MPC has been able to support the UK economy through the changing of the seasons.
Despite the economy being buffeted by diverse and sizable shocks since the recovery began, inflation has averaged 1.7%; GDP growth has generally been robust, averaging around 2%, and above the subdued rate of potential supply growth. The wide margin of spare capacity present after the crisis was absorbed, unemployment is at multi-decade lows and employment at an all-time high. Real wages have finally returned to relatively strong rates of growth. Inflation expectations have remained anchored to the target, even when CPI inflation has temporarily moved away from it.
This performance underscores that the bar for changing the regime is high. But it is nonetheless healthy to review it periodically, and that review is supported by the Bank’s active research agenda.
Mr Carney concludes: “There is an old saying that there is no such thing as bad weather, just inappropriate clothing. With the economic climate changing, let’s ensure that the Bank remains well suited to deliver its mission to maintain price and financial stability in support of the Good of the people of the United Kingdom.”
Full speech on Bank of England
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