The Bank sought to do this by cutting interest rates to buoy up consumer spending. And the Government stepped up its own spending, which was helpful given the international environment. Although we couldn't avoid an overall slowdown altogether - the economy on the latest data ground to a halt in the fourth quarter of last year - we have managed for most of the time to keep the UK economy as a whole moving forward despite the recession in the internationally-exposed sectors of manufacturing. Of course we'd all have been much happier with better balanced growth. Stimulating domestic demand to offset the external weakness - the only option available to us - was very much a second best option. It was not without its own risks including the build-up of household debt and the current exuberance in the housing market. But it was better than doing nothing at all. That would have meant a much sharper slowdown, and probably recession, in the economy as a whole. And, given that inflation was well under control, it would have meant a quite unnecessary loss of overall output - and income and employment. In effect we took the view that unbalanced growth was better than no growth. It is perhaps less obvious that we could not have done more to weaken the exchange rate. At around $ - 1.50, sterling's value against the dollar through this period was not seen by most people even in the internationally - exposed sectors as a particular problem.
The Rt Hon Sir Edward George: The Bank of England’s monetary policy objective and recent challenges Speech by The Rt Hon Sir Edward George, Governor of the Bank of England, to the Royal Society for the Encouragement of Arts, Manufactures and Commerce (RSA) Birmingham, 11 April 2002. *  *  *  I've had a long-time interest in the RSA. I was honoured to be elected as a fellow in 1986. But this is the first time I've participated in one of your programmes. The Society, unusually, brings together people from different backgrounds and disciplines - across the arts to the sciences, but with a common interest in social and economic progress in the broadest sense. That diversity, but also commonality, of interest is reflected in the RSA Journal, which I find a fascinating read - whenever I get the time. It's reflected, too, in your lecture program so that I find myself slotted in between a lecture entitled "The feel good factor", on a medical theme, and another entitled "Chaos is good for you!" describing a creative approach to business management! In fact I have been invited to talk about the "Monetary Challenges" we are currently facing - and, when you've heard what I have to say, you may feel that this juxtapositioning is not wholly inappropriate. But let me begin by explaining what it is that we are trying to do through monetary policy at the Bank of England, and why.