It’s time to talk about money Speech given by Sir Jon Cunliffe, Deputy Governor Financial Stability, Member of the Monetary Policy Committee, Member of the Financial Policy Committee and Member of the Prudential Regulation Committee  London School of Economics, London 28 February 2020  I am grateful to Alex Michie for his assistance in drafting these remarks and Ben Dyson, John Jackson, Josh Sadler, Tom Mutton, Alice Carr, Emma Sinclair, Ryland Thomas, Michaela Costello, Chris Ford, Simon Scorer, Justin Jacobs, Wayne Chapman, Samantha Riley and the Bank’s Archivists for their input. 1  All speeches are available online at www.bankofengland.co.uk/news/speeches  Intro One of the questions that I find hardest to answer simply is “what does the Bank of England do?” I get asked this penetrating question a lot, especially by children when I visit schools as part of the Bank’s outreach and education programme – which incidentally is one of the most rewarding parts of my job. There is a long, comprehensive and accurate answer of course, describing our monetary policy and financial stability objectives, policies and actions and our role in demand management. When I talk to economics classes in schools, I can often feel their teachers willing me to come out with these textbook answers. But I find that the better and simpler answer is that we are responsible for ensuring that the money of the United Kingdom ‘works’. Money, like electricity and water, is crucial to the operation of a modern society.
Therein lies our biggest challenge. Prices for services have been rising at a fast rate as the economy has recovered from the recession. In particular, rents for new leases have climbed rapidly. And labor shortages are everywhere, leading to higher labor costs. Indeed, inflation pressures have become broad-based across a wide range of goods and services. Good News and Bad News What does the future hold? I will start with some good news. First, prices of many commodities, such as lumber, are in retreat. Absent further supply disruptions, I expect slowing global growth, in part reflecting tighter monetary policy here and abroad, will continue to reduce demand for these products. This should put downward pressure on commodity prices and help ease inflationary pressures, especially for goods and services that are heavily reliant on commodity inputs. Second, we have seen significant improvement in global supply chains, and I expect this to continue. At the New York Fed, economists have developed the Global Supply Chain Pressure Index, which measures the extent of global supply-chain disruptions by summarizing a variety of data, including reported delivery lags and the costs of transporting goods. The Index soared to unprecedented levels late last year but has  2/5  BIS - Central bankers' speeches  now reversed about two thirds of its rise. Although significant supply-chain problems are still affecting some industries, such as autos, improvements in supply should help ease supply-demand imbalances and result in lower prices for affected products. 3 Unfortunately, that's it for the good news on inflation.