Paul Fisher: The outlook for the UK economy Speech by Mr Paul Fisher, Executive Director for Markets of the Bank of England, to the Cardiff Breakfast Club, Cardiff, 24 May 2013. *  *  *  Introduction It’s nice to be back in Cardiff again. As always, I will be taking the time while here to visit a number of local businesses in an effort to find out what is happening “on the ground” in the Welsh economy. Our network of agents across the UK provide the MPC with valuable intelligence on a continuous basis, but there’s nothing quite like hearing it at first hand for oneself. Recent changes at the Bank of England I’d like to start this morning by outlining some of the recent institutional changes at the Bank of England, which will help shape the policy environment for a generation. First of all, supervision is back! The new Prudential Regulation Authority, a subsidiary and therefore part of the Bank of England, has moved into its new offices at 20 Moorgate, just a two minute walk from the back of Threadneedle Street (or faster on a cold morning!) The move back to the Bank will help us to exploit the synergies between microprudential supervision on the one hand and the markets, economics and financial stability expertise of the wider Bank on the other. But most importantly this is an opportunity to change the way in which banks (and building societies, credit unions, insurers and major investment companies) are supervised.
So pursuing a strategy of monetary accommodation will be in the interests of savers in the medium-term, even if it feels like the opposite in the short-run. We should all want to see sufficient growth such that interest rates can start to rise. 4  BIS central bankers’ speeches  Taking all that together, my policy vote has been driven by the need to continue supporting the required real adjustments – which still have much to work through – but cautiously, so as not to risk inflation expectations becoming de-anchored. My personal view is that faster growth in the near-term might actually help keep inflation down for a while as productivity growth picks up. Eventually, however, reductions in the degree of spare capacity in the economy should bring domestic inflationary pressures back to normal, so it will be important that other factors influencing inflation do not remain elevated. The MPC is committed to getting inflation back to around the 2% target – which it will in due course, in the absence of further shocks and if we are careful with policy. Monetary accommodation should generally be helpful to balance sheet rebuilding, but there are limits. For example, I am not convinced that a further reduction in interest rates would stimulate demand at this stage. Cuts in interest rates work in part by encouraging spending (or investment) at the expense of saving.