The point is that there has been increasing recognition that it is the complex interaction of policies across the board - often involving difficult political judgements as to how best to reconcile economic and other social objectives - that influences the supply-side capacity of the economy. And it is that which determines the underlying rate of growth that can be sustained and sets the limits to what can be achieved through macroeconomic demand management. Against that background our recent economic performance has improved. In fact, since the broad monetary policy framework of inflation targeting was adopted in the UK some seven years ago, the United Kingdom as a whole has in fact achieved the longest period of sustained low inflation we’ve BIS Review 33/20009  2  known for a generation. Retail price inflation, on the Government’s target measure, has averaged around 2.7%. But alongside low inflation we’ve had the lowest nominal interest rates that most of us can remember. Short-term rates have averaged some 6¼% compared with some 11¼% over the preceding decade. And 10-year government bond yields have fallen, with inflationary expectations, to around 5¼% which apart from a brief period last year is the lowest they’ve been for nearly 40 years. Much more fundamentally we’ve enjoyed the longest period of uninterrupted, quarter by quarter, economic growth since records began some 45 years ago - with annual growth averaging 2.8% between ¼ and ½% above most estimates of our underlying trend rate. The number of people in employment is the highest on record.
Its members, individually and collectively, are publicly accountable for the way in which that responsibility is exercised. The supply-side agenda, under successive governments has inevitably been more diverse. It has included a strong commitment to free markets and competition as the motive forces for productive efficiency, and as the essential means of allocating financial and real resources. It includes an equally strong parallel commitment - both regionally within the European Union but also more broadly - to international free trade in goods and services and to the global free flow of capital. The supply-side agenda has included an extensive program of “privatisation”, bringing market disciplines to bear on commercial activities previously undertaken within the public sector, but often involving new forms of regulation in areas of activity that might otherwise be dominated by natural monopolies. It has included extensive deregulation - for example in relation to financial services, including banks and building societies, though this has been accompanied by improvements in the financial infrastructure and by enhanced prudential supervision. It has included measures of labour market deregulation and Trade Union reform. And it has included increased emphasis on education and training; measures to encourage business enterprise - especially among smaller businesses; and reforms to the welfare system to improve incentives to work. The list could go on.