UK inflation performance That brings me to the final area where the UK economy has performed very differently to expectations last summer – headline inflation. The UK has just experienced the second significant upward spike in inflation in the last couple of years. Since the beginning of 2008, when the financial crisis and the ensuing recession might have been expected to push down inflation, consumer price inflation in the UK has averaged 3% – above the 2% target and more than one percentage point higher than average CPI inflation in the pre-recession period of growth. Our inflation rate is clearly influenced by external factors in the world economy, such as a volatile oil price, and these have clearly made the control of inflation more difficult over the last two or three years. But if these global forces were solely to blame for higher inflation, they would be having a similar effect in other major economies. As Chart 6 shows, the US and the euro area have seen lower and more stable inflation over the last couple of years, with inflation averaging around 1¾% since the beginning of 2008. US inflation has recently been pushed up to over 2% by higher petrol prices, but to a much lesser extent than in the UK. 5  According to the Labour Force Survey measure, unemployment peaked at 11.9% in mid-1984 and 10.6% in early 1993. Approximately two years after the start of the recession in both cases, unemployment was 10.2% at end-1981 and 10.4% at end-1992.
According to the Work Foundation, the Reading and Bracknell area is assessed to have the best job growth potential of any UK urban conurbation and Swindon and Oxford also make the top 10 in their league table. 2 When I accepted the invitation to give today’s speech, I had not appreciated that today – 13th July – was a significant date in terms of my career and my position on the Monetary Policy Committee (MPC). Four years ago today, on 13th July 2006, Gordon Brown – who was then Chancellor of the Exchequer – announced my appointment in Parliament, and I joined the Committee just over two months later. The course of monetary policy while I have been on the Committee has been dominated by the effects of the global financial crisis, and the recession which ensued. It has also been a period when the Committee has found it more difficult to keep inflation on target than in the more stable global conditions which prevailed until 2007. In 36 out of the 45 months I have served on the Committee, CPI inflation has been above the 2% target. And it has been more than one percentage point above the target – the threshold which triggers an explanatory letter from the Governor of the Bank of England to the Chancellor – in 15 months, a third of the time that I have been on the Committee. That includes June’s inflation rate which was announced earlier today.