10  See, for example, Blinder (2004), Blinder and Morgan (2000) and Lombardelli et al (2005). 11  The arguments for delegating decisions on interest rates to a committee of experts were discussed in my May 2002 lecture to the Society of Business Economists. See King (2002a). BIS Review 43/2007  5  Second, members of the Committee are individually and publicly accountable for their votes. Disagreement among the Committee is inevitable; it is also desirable because it represents the individual judgements of members, rather than an attempt to create a false consensus. It is a source of strength. Over the past ten years, there have been 153 dissenting votes, on average more than one per meeting. This institutional encouragement of open debate is in contrast to many other central banks. We don’t “do consensus”, as one former member put it. Dissent is more frequent than on other central bank committees which publish individual votes, and is not just token. Table 2 reports the proportion of dissenting votes in four central banks during the period since the MPC was set up. Not only is the number of dissenting votes greater on the MPC, the frequency of more substantive disagreement – where one quarter or more of the voters dissented – is markedly greater. Voting patterns on the MPC reflect the distribution of views about how to interpret the economic data, not a hint about where rates will go. Voting is certainly not used as a signal by the Committee.
Structural improvements in the labour market are, however, unlikely to explain the full improvement in the stability of inflation and output. They cannot explain the low and stable level of inflation expectations. Changes in the yields on government bonds indicate that investors’ expectations of inflation over the medium-term – and the premium they require to compensate them for the risk of future inflation – have also fallen significantly. Chart 5 shows the sharp fall in expected inflation that resulted from the actual announcement of independence for the Bank of England in 1997. It seems to me likely that the new framework for monetary policy has been a key, though not the only, driver in moving the frontier inwards. By eliminating uncertainty about the inflation target and ensuring that the objective of low and stable inflation is well understood and credible, the change in the framework in 1997 helped to anchor expectations of inflation in the medium term. By doing so, it has made it possible for the MPC to keep inflation closer to target with smaller changes in monetary policy, and hence fluctuations in output, than would otherwise have been the case. The anchoring of inflation expectations has changed the way businesses respond to unexpected shocks. Faced with changes in their costs stemming from, for example, changes in import or energy prices, businesses can respond in two ways, each consistent with the necessary change in employees’ real take-home pay. They can pass those cost changes forwards to prices or backwards to money wages.