It is a massive improvement, and one which has earned the UK a good deal of respect on the international stage, as judged by the Article IV reports from the IMF and the convergence reports of the European Union. Shortly after Robert Rubin announced last week his impending departure as US Treasury Secretary, he gave the Commencement Address at New York University. In it he stated the four principles for decision-making that had guided him during his career. They encapsulate exactly 2  Shiller, R, “Why do people dislike inflation?” NBER Working Paper No.5539, April 1996  9  BIS Review 63/1999  the philosophy of the MPC. First, the only certainty is that there is no certainty. Second, every decision is a matter of weighing probabilities, or the balance of risks, as we say. Third, despite uncertainty we have to decide and act. Fourth, decisions should be judged not only on the results but also on how they were made. The first three principles guide every meeting of the MPC. And the fourth is one I commend to all those who wish to make their own judgment about the MPC two years on. Institutions matter. The Bank of England is an old institution. But its success has been based on its willingness to change and adapt. In its 300-year history, probably no change has been as significant as operational independence and the creation of the Monetary Policy Committee. The Bank aims to be at the forefront of the theory and practice of monetary policy.
Since the end of 1992 output has grown at an average annual rate of 2.8%, well above the post-war average. More significantly, growth was more stable, with a standard deviation less than one-half that of output growth in earlier post-war decades. And unemployment, as measured by the Labour Force Survey, has fallen from 10.7% at its peak in 1993 to a current level of 6.3%. So since the inflation target was adopted inflation has been lower, and growth as high, as in any post-war decade, and both have been more stable. And total output in the economy has now increased for 27 consecutive quarters, the longest period of uninterrupted growth since the Second World War. Part of the credit for this improvement in UK macroeconomic performance belongs to the policy framework (both pre- and post-MPC), and part was the result of favourable economic circumstances. From 1992 to 1996, the ability to grow at above trend rates without an increase in inflationary pressure was made possible by using up the margin of spare capacity created by the deep recession of the early 1990s. After 1996, inflationary pressures were contained by lower commodity and other world prices, and the impact of a sharp appreciation of sterling. These developments have had a significant impact on inflation. And they were largely unpredicted. So, although monetary policy has faced some difficult choices over the past two years, it has benefited from an unexpected downward movement in imported inflation. These external influences have offset a much higher level of domestically generated inflation.