Given these considerations, the public sector has to be forward looking in its approach to data. HM Treasury set out the Government’s ambitions for data5, and the policy challenges presented by its economic characteristics, in an insightful discussion paper this summer. At the Bank, we have been exploring how new sources of data can deepen our understanding of the economy and financial sector to further our mission.6 There are many use cases I could give, but in order to best frame today’s proceedings, I will focus on our ambitions for renewing the Real-Time Gross Settlement (RTGS) service.7 The RTGS renewal programme The renewal of the RTGS service is an opportunity for the Bank of England to influence the future of data from the heart of the UK economy. To play our part in the data revolution we are using this programme of investment in critical national infrastructure as an opportunity to set data standards nationally and drive them internationally.8 Infrastructure change does not happen very often – our current RTGS service is over twenty years old. But when it does, it is a foundational change – not least because, as the central hub for payments in the UK, everyone talking to it needs to speak the same data language. The current language – SWIFT’s MT messaging – has its origins in the 1970s, to replace paper forms and Telexes. It was not designed for the modern era, and indeed earlier in the year SWIFT itself consulted users on retiring MT messaging for payments in 2025/26.
In a similar vein, some forms of “good” deflation could be accepted as conducive to stronger growth. To me, this approach is very misleading. I will indulge here in a little bit of history. As you know, at the inception of the euro, the definition of price stability was set as “lower than 2%”. That definition was quickly perceived by markets and economists as meaning we took a benign view of low inflation or, even, stood ready to accept deflation. As a result, the Governing Council felt the need, in 2003, to change the wording and specify the definition of price stability as “lower but close to 2%”. Third, the validity of the 2% target is widely acknowledged. That definition of close to 2% has today been broadly adopted in major advanced economies, including in the US and Japan. This is no coincidence. There is a robust rationale for aiming at 2% or close to 2% and, therefore, not tolerating persistent lower inflation. First, since the work of the Boskin Commission, which, I believe, is also valid for the euro area, we know that available measures tend to overestimate this rate. So it is legitimate to consider that, technically, an inflation rate of 1% may, in reality, be zero. Then, if the central bank aims at 1%, any negative shock would plunge the economy into deflation. To absorb such a shock, some margin – in the order of an additional 1% – is necessary. This simple reasoning provides a very strong basis for the current definition.