That increasing short-termism in turn led to the increasing amplitude of the business cycle, so that inflation rose progressively higher from economic peak to peak and unemployment rose progressively higher from economic trough to trough. I am convinced that, with others, we really have taken on board the lessons of that experience. The requirements that public debt to GDP is kept at a stable and prudent level, with borrowing over the economic cycle limited to finance investment spending, constrain the use of fiscal policy as a short-term instrument. And monetary policy has been given the distinct role as the primary instrument for short-term aggregate demand management, with a target for retail price inflation, not simply as an end in itself, as some people still seem to imagine, but as a measure of the extent to which the growth of demand is held consistently broadly in line with the underlying - sustainable - growth of supply-side capacity. The past ten years have in fact been a period of unusual stability in that broader sense for the UK economy as a whole. Inflation has been consistently low throughout that time - close to, and recently modestly below, our present 2½% target. But that has not been achieved at the expense of consistently high interest rates, and weak growth and high unemployment, as many people initially feared that it would.
Risk assessment We see the risks to the economic outlook as broadly balanced. Economic activity could outperform our expectations if consumers become more confident and save less than currently expected. A faster improvement in the pandemic situation could also lead to a stronger expansion than currently envisaged. If supply bottlenecks last longer and feed through into higher than anticipated wage rises, price pressures could be more persistent. At the same time, the economic outlook could deteriorate if the pandemic worsens, which could delay the further reopening of the economy, or if supply shortages turn out to be more persistent than currently expected and hold back production. Financial and monetary conditions The recovery of growth and inflation still depends on favourable financing conditions for all sectors of the economy. Market interest rates have eased over the summer, but reversed recently. Overall, financing conditions for the economy remain favourable. 2/3  BIS central bankers' speeches  Bank lending rates for firms and households are at historically low levels. Lending to households is holding up, especially for house purchases. The somewhat slower growth of lending to firms is mainly due to the fact that firms are still well funded, because they borrowed heavily in the first wave of the pandemic. They have high cash holdings and are increasingly retaining earnings, which reduces the need for external funding. For larger firms, issuing bonds is an attractive alternative to bank loans. Solid bank balance sheets continue to ensure that sufficient credit is available.