John Gieve: A tale of two cycles Speech by Sir John Gieve, Deputy Governor of the Bank of England, to the North East Chamber of Commerce Durham Tees Valley Dinner, Durham, 19 June 2008. *  *  *  Introduction Ladies and Gentlemen, it is a great pleasure to be here this evening in what has been a busy week for the Bank, with the open letter to the Chancellor in response to the news on Tuesday that CPI inflation rose to 3.3% in May, the latest MPC minutes, and the Chancellor’s announcement last night of an enhanced role for the Bank on financial stability. Things have certainly changed in the year since your chief executive, James Ramsbotham, asked me to speak here this evening. The Bank's links with this region go back to 1828 when, in response to a crisis of confidence (this one over locally issued bank notes), we opened a branch in Newcastle. The move was not well received. The Newcastle Chamber of Commerce, wrote to the Directors of the Bank of England, saying "in the absence of any avowed motive for the establishment of a Branch of the Bank of England, in Newcastle, [we] see no prospect of good from such an establishment.......[We] most earnestly recommend to the Directors of the Bank of England to re-consider the policy of the measure they are about to adopt and to abstain from trying such an experiment on a system of banking, the advantages of which are so generally felt and admitted."
Yet this week the Governor’s open letter to the Chancellor to explain why inflation last month had deviated by more than a percentage point from the target was only the second written in over 10 years. And taking the past decade as a whole, this stability of inflation has not come at a cost to growth – quite the opposite in fact. Output growth has been high both relative to the rates  1  Indeed work done at the Bank suggests that in terms of inflation, it has been the most stable decade in many lifetimes – that is, since the Restoration at least (Benati (2006)). BIS Review 80/2008  1  achieved on average over the preceding 30 years and in comparison with our European neighbours. It also has been remarkably stable. 2 Of course that stability at the macro level disguises some big changes in the structure of the economy. Indeed it has provided a platform for change. The North East for example is now much more diverse than it was and less reliant on a few large industries. And, overall more people are employed in the region: the number employed in the North East has risen by more than 100,000 in the past ten years. And export growth remains relatively buoyant. In contrast to this picture of stability, the preceding 3 decades were scarred by painful recessions where unemployment rose sharply, and inflation fluctuated wildly.