But there were also important secondary effects on the relationships between the major industrial countries’ currencies. The dollar and sterling - which have in fact been reasonably stable against each other since we came out of the Exchange Rate Mechanism - strengthened, notably against the euro, notwithstanding reductions in our relative interest rates, perhaps on the expectation that an earlier or stronger pick-up in domestic demand would keep our economies operating closer to capacity than in the Eurozone. And the yen, which had been notably weak on the back of Japanese recession, has subsequently picked up as the prospect of economic recovery there improved. It is the strength of sterling’s exchange rate which gives rise to the most vociferous complaints. I am only too well aware that for many of the internationally-exposed sectors of the UK economy most of agriculture, much of manufacturing industry, and some services sectors - these developments came as a series of hammer blows - of varying intensity depending on the particular international orientation of the business. Companies trading with, or competing against, much of East Asia, but also other emerging and transition economy markets, saw their markets collapse and prices fall dramatically given the massive falls in many partner-country exchange rates. Trade with the Eurozone - by far our largest trading partner - was also adversely affected, until recently, by sluggish domestic demand in the major Continental countries and by the weakness of the euro.
These trends, and the extraordinary efforts of UK businesses themselves to cope with the hostile international environment, are already resulting in a stronger net external trade performance. That in turn is contributing to the recovery, particularly in manufacturing output growth and to the more encouraging news in some recent surveys. To the extent that this improvement in external demand persists, it will help to ease the exceptional pressures on the most internationally-exposed sectors, and contribute to a better balance within the UK economy. But it needs, of course, to be accompanied by corresponding moderation of the growth of domestic demand - after the offsetting stimulus of a year ago - if we are to maintain overall stability. That essentially is why interest rates have had to rise since last autumn. Mr Chairman, most people, as I say, accept in principle that sustained monetary stability is good for the economy as a whole in the longer term - though it is accepted with varying degrees of enthusiasm by adversely affected sectors at any particular time. But there is, nevertheless plenty of room for debate about the operation of monetary policy in practice. Specifically at present the MPC is often accused of being overzealous - and it is suggested that we don’t in fact need to raise interest rates at this point in order to achieve the inflation target. That is a more technical question. Changes in interest rates take time to have their full effect, so our decisions have to be forward looking.