So you may be reassured to hear that we spend most of our time worrying about the risks that could throw the UK economy off course; and arguing about how to respond appropriately. So what are the main risks facing us now? Last year saw the fastest growth in world output in three decades. We expect growth this year to be less spectacular but still robust. But while the US and China are still expanding strongly, growth has showed signs of faltering in Japan and, to a lesser extent, in our major overseas market, the euro area, and especially Germany. We think this weakness is likely to prove temporary, but we could be disappointed. Unbalanced growth creates strains. The US has a large current account deficit, which is mirrored by surpluses in the other major trading blocks. The risk is that a better balance will only come about through sharp adjustments in exchange rates and a marked increase in US savings, which may cause a slowdown in global activity. Closer to home, there is uncertainty about the near term momentum of household spending, by far the largest influence on domestic demand. While it is difficult to be confident about the path of retail sales since the autumn, there is little evidence of much underlying buoyancy. Retail sales are not the whole story, and our central view is that any weakness in consumer spending is likely to be temporary. But we could easily be wrong.
BIS Review 11/2005  1  Low inflation is not in itself a solution to problems like this. But it is a pre condition for solving them. Merseyside had bad luck to be confronted with more economic change in the second half of the twentieth century than most people could cope with at the time. Liverpool never lost its sense of humour, though there were times when it came close to losing its way. Sadly, you can’t laugh your way out of economic decline. High inflation and economic instability fostered the wrong climate for taking the long term decisions that were needed to give Merseyside a new future. The levels of economic inactivity and social deprivation that you are still grappling with today are in part legacies of the 1970s and 1980s, when the sharp ups and downs in inflation, interest rates and national output made it much harder to adapt to structural economic change at the regional level. But more recent success in delivering low inflation and economic stability has created a much better climate for you to succeed. Economic regeneration can’t get off the ground without inspired local leadership, and committed local partnerships. But even with them, it is a long haul to make the investments in infrastructure that modern businesses expect. And so called soft investments – in people, skills, and communities – are even more of a challenge. Low inflation and low nominal interest rates matter to you because they provide a sound foundation for just this kind of long term planning.