Both the financial crisis and the recession which followed it were global economic events. No major economy in the world was unaffected by the financial turbulence and the dramatic downturn in world economic activity in late 2008 and early 2009. And on the inflation front, we have seen major global forces operating too, with the inflation rate in the UK and other countries being significantly affected by large price swings in global energy and commodity markets. The global economy is now much more integrated and interdependent than at any time in the history of the world. Four main forces have come together in the past two decades to create the “New Global Economy” of the 21st Century. First, new technologies have had a major impact, notably the development of global information technology, media and communications networks. Second, barriers to trade have been reduced, with most of the world’s nations now participating in a liberal and open trading system. The World Trade Organisation now has 153 members, covering 97% of the world’s population. Third, political change has extended the global market economy to large parts of the world which were previously closed to international trade and investment – including China, India and the former Soviet Union economies. And fourth, there has been a tide of deregulation of markets – including financial markets – in many countries, and as markets have been deregulated, they have also been opened up to international competition.
8  As I have pointed out in an earlier speech (Sentance, 2011), UK inflation has persistently run ahead of the euro area, Sweden and Switzerland since the financial crisis,  BIS central bankers’ speeches  11  Chart 11 – UK goods and services inflation Annual percentage change in consumer prices 7  Goods inflation  6  Services inflation  5 4 3 2 1 0 -1 -2 -3 2000  2001  2002  2003  2004  2005  2006  2007  2008  2009  2010  2011  Source: ONS For these reasons, I have been arguing for the past year that the MPC should embark on a policy of gradual interest rate rises and that delaying this process exposes us to greater inflationary risks in the future – which would not be good for economic growth in the medium term. Continuing to accommodate inflation makes it more likely that a future sharp policy correction will be needed, particularly if persistent high inflation becomes embedded in wage and price-setting. That not only poses a threat to the recovery further down the track, but it could erode the hard-earned credibility of the UK monetary policy framework – which would be very damaging for economic growth over the longer-term. Here in Jersey you are in a monetary union with the UK. So you too have a strong interest in the MPC getting its policy judgements broadly correct.