Paul Tucker: Credit conditions for firms – stability and monetary policy Speech by Mr Paul Tucker, Deputy Governor for Financial Stability at the Bank of England, to the Association of Corporate Treasurers’ Annual Conference, Liverpool, 18 April 2012. *  *  *  It is quite a few years since I last spoke to an ACT gathering and it is very good of you to ask me back. Since then, many of you have been close to the front line of the financial crisis that overtook us nearly five years ago. Bridging the financial economy to the real economy, you have had to navigate a demanding obstacle course while the real economy “rebalances”. That means that businesses – the productive part of the economy on which our prosperity depends – are having to adjust after years, preceding the crisis, when spending was loaded too much towards household and government consumption, the country’s income from net trade was too weak, and investment was too heavily weighted towards commercial real-estate construction. That rebalancing has some way to go. While many of the planned tax increases are already in place, government consumption will continue to be scaled back for the next few years. There is also a risk that households will spend less than expected in order to rebuild their balance sheets, holding higher liquid savings than previously as a precautionary buffer.
Those with long memories know we have achieved low inflation and steady growth before - though never for so long - only to see them slip away. They ask: what’s to prevent that happening again? A lot has changed in the past fifteen years. We now have an approach to setting interest rates which provides much better incentives for policy makers to take the right decisions. This - and the strong track record built up over the past decade - has stabilised expectations, with the result that it takes more to throw inflation off course. This is crucial insurance against the risks of a more turbulent decade ahead. A trickier issue - and one on which I want to spend some time tonight - is the vexed question of information. Statisticians get an even worse press than economists. But they are indispensable. Just as well run businesses need good management information, so successful monetary policy depends on having good information about the economy. The statistical fog surrounding the true state of the economy has proved a particularly potent breeding ground for policy errors in the past. Are we yet in sight of a clearer view? The policy framework But let me start first with the policy framework: what grounds are there for being confident that it provides the right incentives for policy makers to take good decisions?