The intermediate variable – the money supply – is known when decisions are made and provided it is closely correlated with the path of inflation one to two years ahead, monetary policy will be very transparent. However, basing monetary policy on a money supply target is not a simple matter. It is questionable whether a straightforward and stable relationship between the money supply and inflation also exists in the short and medium term. This is because the relationship has been disturbed by various factors. Financial innovations have contributed, for example, to changes in the pattern of household payments and investment. Moreover, a number of major factors still have to be forecast in order to arrive at what may be an appropriate target for the money supply. So in practice even a money supply strategy has to be based on forecasts of a number of variables and an assessment of, for example, the output gap. Moreover, when the strategy was used in a number of countries in the 1970s and ‘80s, it was not particularly successful. In the absence of a straightforward, stable relationship between the intermediate variable (the money supply) and the ultimate objective (price stability), a conflict may arise between them because the central bank has only one instrument, its interest rate. If the central bank chooses the minimise fluctuations in the money supply, a probable consequence – given that the relationship is not exact or stable – will be increased fluctuations in inflation and output.
We appreciate that firms are at different stages on the development of the diversity and inclusion data strategy and the purpose of this survey is to understand better what data firms currently collect about their workforces. We are especially keen to receive feedback on the challenges of collecting diversity and inclusion data. I would like to take this opportunity to encourage you to participate in the survey as it may help to shape potential future regulatory returns, so the more information we can learn from firms, the better. It is particularly valuable to hear from small firms to ensure that we receive a representative sectoral response and it is important that the voice of the mutuals sector be heard in this discussion. Climate change Since our former Governor, Mark Carney’s speech in 2015 on ‘the tragedy of the horizon’, the Bank has been working with many other organisations, with our particular focus on financial stability, from physical and transition risks. Our expectations for firms were set out in Supervisory Statement 3/194 and firms contribute to work on their implementation plans. Firms should consider how they can assess the climaterelated financial risks associated with their clients and counterparties and have a clear high-level strategy for adapting to the range of potential climate outcomes. The PRA is mindful of the need to take a proportionate approach and accept that smaller firms do not have the resources to develop as sophisticated an approach as larger firms.