And that would have meant eventually having to tighten policy more abruptly, which would much more certainly have plunged the economy into serious recession, a bit further down the road. The harsh reality is that monetary policy can only target the economy as a whole - it cannot realistically seek to shelter particular businesses or particular sectors or particular regions, however much we might all wish it were otherwise. And, in relation to the economy as a whole, the effective choice in the situation we faced was not whether or not to tighten, but whether to tighten sooner, and by less, or later, by more. So we raised interest rates through the second half of last year - and again in June - trying, as best we could through our tactics, to minimise any further unwanted upward pressure on sterling. But things have now clearly moved on. The outlook for the world economy deteriorated further through the summer under the impact of a series of new shocks. Japan, the world’s second largest economy, slipped further into recession. Russia - which had only weeks earlier embarked on an IMF program - saw the collapse of the rouble and default on its debt. And acute nervousness spread through many of the world’s financial markets. Although there has been some improvement in sentiment over the past month or two, and although the US and European economies continue to expand, the likelihood remains that world economic growth will be significantly slower than had been expected earlier in the summer.
The facts are that for the past 6½ years the British economy as a whole has grown at an average annual rate of over 3% - which is well above its long term trend rate of some 2% - or, if you are optimistic, some 2½%. And we were still growing, at an annual rate of some 2% in each of the last two quarters, on the latest published data. At the time these headlines were written a month or so ago not one of the 28 independent professional forecasting organisations surveyed by Consensus Forecasts was expecting output to fall in 1999; and their average expectation was for 1% growth next year. That is broadly in line with our own latest best guess in the MPC. Your own most recent IOD forecast in September suggested slightly stronger growth next year. It is true that Consensus Forecasts have since revised down their mean expectation - to just over ¾% growth; but even now only one of the 28 contributors expects output to fall. On unemployment in the UK the headlines read: * Jobs gloom deepens as layoffs soar. * More jobs go as recession looms. * Jobless up as world pain hits Britain. BIS Review 98/1998  -2-  And the facts? At the time these headlines were written, the unemployment rate, both nationally and in virtually every region of the UK, apart from the South East and East Anglia, was the lowest it has been since at least the early 1980s. I could go on.