In January, the Bank forecast that inflation would average 2.6 percent between 1997 and 1998, and 2.3 percent in the course of the year. It seems clear that inflation during the first quarter of this year has been lower than expected in January. Government Finances In 1997, the Treasury recorded a welcome surplus of 1.3 billion kronur on a cash basis despite tax cuts, a rise in the wage bill and special interest payments associated with government bond redemptions. In order to compare the outcome with the budget it is necessary to exclude the special interest payments of 3.5 billion kronur. Thus adjusted, the Treasury’s surplus was 4.7 billion kronur. A Treasury surplus had not been recorded since 1984. On an accrual basis, which includes accrued interest and pension liabilities, the Treasury’s finances appear to have been close to balance in 1997. The Treasury repaid debt during the year. Amortization of foreign debt exceeded new borrowing by 6.5 billion kronur, or the equivalent of 5 percent of the Treasury’s foreign debt; this marked the first time since 1986 that amortization of foreign debt exceeded new borrowing. Domestically, new borrowing exceeded amortization by 3.4 billion kronur. While this turnaround in the Treasury’s finances is certainly to be welcomed, it is, nonetheless, a somewhat mixed blessing.
Compared to our framework for things like capital, liquidity and accountability, the regulatory framework for operational resilience is thoroughly under-developed not only here in the UK but also internationally. This matters more than it used to for a number of reasons, but let me pick out two. First, the emergence of cyber-attacks is a clear and present danger to the financial system which our forebears simply did not have to worry about. And second, as more and more of us access banks and insurance companies digitally, with a major programme of bank branch closures in full swing, and in the age of social media where problems become very visible very quickly, operational failures hurt more than they used to. For the same reasons the Treasury Select Committee is rightly taking a strong interest in this topic. 1  £ as at year-end 2017 4  All speeches are available online at www.bankofengland.co.uk/speeches  4  We therefore published during the summer – jointly between the PRA, FCA and Bank as supervisor of market infrastructure – a discussion paper proposing a new framework for thinking about these issues. The central idea is a simple one: how much operational disruption to key business services should firms, the PRA, the FCA, and the wider Bank of England be prepared to tolerate? We call this ‘impact tolerance’. The focus of our future policy will be on the continuity of the business services that a firm’s customers and the wider economy rely upon.