In it, the Monetary Policy Committee communicates its views about an uncertain future using methods that draw on the ideas discussed above. In the Inflation Report, the MPC sets out its latest projections for key economic variables. The most important of these is the projection for inflation. The Committee has a clear  17  Morris and Shin (2002) study a case in which a central bank can only reveal a noisy signal. That signal, which is unavoidably inaccurate (e.g. a central bank forecast), is given an inappropriately high weight in private decisions because each private participant expects others to use it, and each wants to ensure that his action is not too far out of line with others’. This is an example where a public communication coordinates on an inferior equilibrium. Morris and Shin also show that public information can crowd out private information. By ensuring that all agents overweight public information in their decisions, that means that other agents observing those decisions can infer less from them about the private information others have that motivated them. In the limit, if everyone took decisions solely on the basis of public information, they could reveal nothing about some private information they may also have, but did not act on. 18  Dale, Orphanides and Osterholm (2008) illustrate how welfare can fall if the private sector overestimates the accuracy of central bank forecasts. 8  BIS Review 36/2010  target to meet, set by government.
Provided the City is properly prepared - as it will be - and here I commend to you the Bank of England’s quarterly reports on the practical, preparations we have been making in London for the introduction of the euro from 1st January next year - available, amazingly, at no charge from the Bank - then there will be a vigorous Euro-euro market in London, from Day 1, just as there are vigorous markets in Euro-DM and Euro-francs as well as Euro-DM and Euro-Yen now. If not our dowry exactly - since we are not entering into the marriage at this stage - it will be our wedding present. The wholesale financial markets in the UK derive their strength from London’s position as a uniquely international, rather than simply a national or regional European, financial centre. This reflects the critical mass of markets and financial services in commercial and investment banking available in London including the strongest financial businesses from all around the world. For instance, there are more banks operating in the City which are incorporated abroad than there are domestic banks, and more than half the total deposit base (over £ trillion) of the UK banking system is denominated in foreign currencies. And, the fact that so many foreign-owned institutions including very many from our European partner countries - continue to build their presence in London, suggests that they share this perception. The City in this capacity is, I know, seen as something of a mixed blessing by some people on the Continent.