I don’t need to remind you of the really miserable social as well as economic consequences - as right across the economy people lost their jobs, their businesses and their homes. More insidiously, repeated experience of boom and bust produced a pervasive short-termism in business behaviour which infected both industry and finance and - dare I say both employers and employees - however much we all like to blame everyone else. Everyone was tempted to grab what they could while the going was good. But we have learned from that experience. We’ve learned that in anything other than the short term there really is no trade-off between growth and inflation. What we are trying to do now through monetary policy is to keep overall demand in the economy growing continuously broadly in line with the capacity of the economy - as a whole - to meet that demand. Both the previous Government and the present one set a low inflation target as the immediate objective of monetary policy, not as an end in itself, but in effect as a measure of our success in keeping demand in line with supply. So the real aim is to achieve stability across the economy as a whole in this much wider sense. BIS Review 71/1998  -2-  Now, there is not a lot, frankly, that we can do directly through monetary policy to affect the supply side - the underlying rate of growth that can be sustained without causing inflation to rise.
On top of that, as we said in our press notice last Thursday - announcing that we had not changed interest rates - we recognise “that deterioration in the international economy could increase the risks of inflation falling below the target”. That is still not the most likely outcome in the eyes of most of us and given the real world uncertainties we can anyway never sensibly tie our hands. But there is no doubt in my mind that recent international developments have at least reduced the likelihood that we will need to tighten policy further. BIS Review 71/1998