And to look at the judgments and uncertainties we now face. Needless to say, as always, the “data are difficult to read”. When I arrived on the MPC, we were seeing signs of a strong recovery – stronger than anyone had forecast – that had started in the spring of 2013. Over the middle 2 quarters of that year, GDP had increased at an annualised rate of over 3%. The key drivers of the recovery seemed to be renewed consumer and business confidence due in no small part to the de-escalation of the Euro crisis and an easing in credit conditions. These in turn released pent up demand in the economy. The evidence suggested that this strong growth would continue into 2014. Forward looking economic indicators were very strong. The business surveys were pointing to continued growth at that pace. The squeeze in living standards from higher energy and food prices had started to ease. But, growth seemed to be almost entirely driven by consumer spending and the emerging recovery in the housing market. That strength in consumer spending did not come from growth in real incomes but from a large, two percentage point, drop in the savings rate. Business investment still appeared to be dragging on activity. So there were real question marks about whether this strong growth could be sustained. The MPC took an optimistic view. We forecast business investment would increase as the surveys suggested and play a bigger role in supporting growth.
The question as always is whether the risk of not waiting until the picture is clearer is outweighed by the risk of not acting in time. To sum up, some of what the MPC, at the point I joined it, thought would happen has happened. We have gone from recovery to expansion. Growth is slowing to something close to its pre-crisis average. Investment has made and is making an increasing contribution to growth. But the behaviour of unemployment, productivity and, most recently, pay continue to surprise and puzzle. More “normal” relationships between these variables may reassert themselves quickly and the pay rounds next year in particular should illuminate some of the picture. But there is also reason to believe that some changes, as in labour supply, may be longer lasting. When I started at the Bank this time last year, the MPC was half way through the process of putting together its latest set of forecasts for inflation and growth. That process is now again in train. The softening in the pay and inflation data, together with the weaker external environment, for me implies that we can afford to maintain the current degree of monetary stimulus for a longer period than previously thought. That of course will be a subject for the MPC to debate in the coming weeks. BIS central bankers’ speeches  5