Charles Bean: Business surveys and monetary policy Speech by Mr Charles Bean, Deputy Governor (Monetary Policy) of the Bank of England, at the CBI Industrial Trends Survey 50th Anniversary Reception, Centre Point, London, 24 July 2008. *  *  *  Good evening! It is a great pleasure to be asked to say a few words to mark the 50th birthday of the CBI’s Industrial Trends survey. The birthday boy and I have, in fact, been acquainted with each other for over thirty years – from when I started my professional career in 1975 as a forecaster in the Treasury. In those days, the quarterly Industrial Trends survey was really the only game in town as far as business surveys go. Since then, the field has become more crowded, but the Industrial Trends survey remains a key source of information about business developments. To celebrate the survey’s birthday, I thought that I might say a few words tonight about the part played by business surveys, and intelligence about business conditions more generally, in our setting of Bank Rate each month. Because our interest rate decisions affect UK economic activity and inflation with a rather long, and sometimes rather variable, lag, there is nothing much that we can do to affect the current and near-term rate of inflation. That is already largely baked into the cake. Instead we have to focus on inflation prospects in the medium term – that is, two years or so ahead.
BIS Review 95/2008  5  I hope that this gives you a sense of the use we make of business surveys, and business intelligence more generally, in making our regular assessment of the state of the economy each month, before taking our decision on the appropriate level of Bank Rate. The timeliness of this information is particularly important at the current juncture, when the economic climate is changing rapidly. The global and UK economies have been subject to two large shocks of uncertain magnitude, duration and impact. The first is the continuing de-leveraging in the banking system and the attendant squeeze on the terms and availability of credit. The second is the fairly relentless rise in commodity prices, especially that of oil, driven in part by the robust growth in demand in the emerging economies. These two shocks both depress output growth, though they have divergent effects on inflation. In our May Inflation Report, our central expectation was for four-quarter GDP growth to slow markedly through this year, reflecting both subdued real income growth and tighter credit supply (see Chart 7, which also includes the same backcast information as Chart 6). It was then expected to gradually recover through 2009 as credit conditions slowly improved. The corresponding projection for CPI inflation is shown in Chart 8 (note that no uncertainty is shown for the past, as the data for CPI inflation are rarely revised).