I see little evidence that inflation expectations might generate the start of a wage-price spiral for example. There are, however, immediate downside risks to the growth outlook. Although my central expectation is that the recent weakness will just be a soft patch, I do worry about a more  8  BIS central bankers’ speeches  prolonged weakness in demand, and in particular, consumer spending. That could knock the recovery off course for a sustained period, shifting the balance of risks around medium-term inflation to the downside. With that risk in mind, putting up Bank Rate could be exactly the wrong thing to do at this precise moment. If it further damaged consumer confidence then it could be the marginal factor that makes a soft patch turn into something worse. Of course, at some point, Bank Rate will have to rise: interest rates will need to normalise if, once the spare capacity in the economy has been eliminated, monetary policy is to be consistent with the 2% target. And because of the lengthy lags involved, Bank Rate will need to start the long journey back to more normal settings well before the degree of spare capacity is eliminated. But for now, I believe there remains time to allow the economy to recover before the eventual tightening begins. I am not trying to give any hints today as to exactly when that will be. I honestly don’t know. I can only continue to assess the data and the outlook as it changes, month by month.
Boards of regulated subsidiaries need to be able to take decisions where required to meet their own legal and governance responsibilities or in the interests of the safety and soundness of the subsidiary. But, that does not mean they should operate outside the general governance and objectives of the group to which they belong. Independence in this context is carefully defined and limited. As you will all be aware, we have undertaken significant engagement with the boards of banks and building societies on governance. Through our supervisory work, we are seeing improvement but in our view there is more to do. Board effectiveness will therefore remain a key priority. To conclude, governance matters a lot, I can’t understate that. Effective boards are central to the success of firms and the financial sector, and central to the delivery of our objectives. Thank you. 4  BIS central bankers’ speeches