In my regular visits, I have criss-crossed the Province and come to realise how important is the business community as the agent of change and reconciliation. It is a challenge to which you continue to rise with spirit and determination. And it is why I enjoy coming here to meet with you, to learn about your progress, and to appreciate the extraordinary beauty of the Province. I am conscious that there are significant differences between the economies of Northern Ireland and the rest of the United Kingdom. Tonight, however, I want to focus mainly on the economic outlook for the United Kingdom as a whole. What are the Bank of England’s diagnosis, prescription and prognosis for the UK economy? At one level, the diagnosis is self-evident. Growth has been much weaker than most commentators expected. In fact, according to the official figures, there has been barely any growth at all over the past 2½ years. Unemployment, at a rate of almost 8%, is markedly higher than the level of around 5½% before the crisis. And inflation, despite its fall over the past fifteen months from over 5% to around 2½%, remains above our 2% target. Living standards have been squeezed for longer than at any time in living memory.
But, as the President of the European Central Bank, Mario Draghi, has said on many occasions, only politicians can produce lasting solutions to the problems facing the euro area, whether by restoring competitiveness to the periphery or creating a framework for a transfer union. The euro area illustrates a major problem for the world economy as a whole – the need to rebalance domestic demand away from countries with trade deficits to those with trade surpluses. Without that, an increasing number of countries are coming to the view that only a lower real exchange rate will provide the stimulus to demand that their economies require. Several have taken action to achieve that end. That is a recipe for competitive depreciations, what some have called “currency wars”. Yet the existing configuration of exchange rates is unlikely to deliver stability. For almost two decades the world has struggled with, but failed to resolve, this problem. So it is hard to be optimistic about how easy it will be to manage the resulting tensions. The fall in our own exchange rate, of some 25% between late 2007 and the beginning of 2009, has reduced the gap between our exports and imports in real terms from around 3½% of GDP to around 1½%. But the persistence of the current account deficit is evidence that an adjustment of sterling of that order was certainly necessary for a full rebalancing of our economy.