As the Governor wrote in his letter to the Chancellor last week, echoing the MPC remit: “price stability is a precondition for high and stable levels of growth and employment”. Confidence  13  For example, the average forecast for 1994 real GDP growth made by the Treasury “Panel of Wise Men” in October 1993 was 2.7%, over 1.5% below the out-turn of 4.3%. BIS Review 158/2010  11  in a world of stable prices in the UK has been hard-won in recent years and we need to safeguard it carefully. I worry that monetary discipline and confidence in the inflation target risks being eroded by keeping emergency settings for monetary policy in place for too long, when the growth and inflation outlook points in a different direction. That is why I have argued for a gradual withdrawal of monetary stimulus and why I will continue to do so, in the absence of material and significant changes in the economic outlook relative to the picture I have described today. 12  BIS Review 158/2010
During the so-called Great Moderation in the15 years or so prior to the financial crisis, there was a close relationship between changes in Bank Rate and the growth of GDP. Indeed, my colleague Ben Broadbent, in his former life as a city commentator, used to draw attention to the startling correlation between the behaviour of the MPC and movements in growth implied by business surveys.7 The self-same surveys that are currently pointing to quarterly GDP growth of around 1%, a rate which in the past would have signalled the MPC was likely to tighten policy. That type of relationship during the Great Moderation is perhaps not that surprising. During much of that period, the economy was close to balance and the job for monetary policy – absent worrying longer-term trends or significant cost or price shocks – often boiled down to keeping GDP growth close to trend. But this time is different. We start with significant slack in the economy: the level of GDP is still below its pre-crisis level; there are almost one million more people unemployed. We need to see a sustained period of robust growth before the economy moves back into anything resembling balance. Linking the future path of monetary  6  The Committee can’t remain entirely agnostic since its forecast for inflation will be affected by its judgement of the degree of economic slack and the speed with which that slack is likely to close as the economy grows.