1  BIS Review 62/2000  The difficulty we face is that, while some part of sterling’s rise in the past few years probably reflects underlying strengths in the UK economy - the sustained growth in activity in recent years and the more flexible and competitive structure of the economy - it is very likely that sterling at its present levels is unrealistically high, and that this is principally a reflection of the persistent weakness of the euro over the past year or so rather than factors directly related to sterling. To compound the difficulty, it is in fact very hard to see why the euro has remained relatively weak at a time when growth in the euro-area economies as a whole has recovered strongly. For the moment, in judging the appropriate level of interest rates, we take very carefully into account the weakness of the UK’s external sector, and the impact particularly on manufacturing, as an immediate factor off-setting in part the buoyancy of domestic demand. But we also have to take into account the possibility further ahead that, if the exchange rate moves back to more realistic levels, as we expect, the boost that could bring to external demand could only be accommodated, without strain on the supply capacity of the economy as a whole, if domestic demand has moderated.
Ian Plenderleith: Current issues in UK monetary policy  Speech by Mr Ian Plenderleith, an Executive Director of the Bank of England, to the Aberdeen Chamber of Commerce on 26 July 2000. *  *  *  If you look at the performance of the UK economy as a whole, there is a great deal from which we can draw encouragement. Since the early 1990s, we have enjoyed what by any standards has been an impressive period of continued growth in output, employment and living standards. The sustained growth in output has been achieved despite the downturn in Asia in 1997-98, which, accentuated by the crisis in Russia, spread to the emerging market economies as a whole and produced a sharp weakening in external demand felt by all the industrialised countries. With the help of the rapid steps we took then to cut interest rates, we have seen a strong recovery in activity in the UK economy last year and continuing growth this year. Equally, we can draw encouragement from the steady rise in employment that has accompanied this sustained growth in output. The improvement has been shared right across the UK: rates of employment vary from region to region, but all regions have shared a rise in employment rates. What is particularly encouraging is that this substantial rise in employment rates has been achieved in the face of considerable changes in the business environment - for example, shifts in demand and in consumer taste, advances in technology and intensified competition.