A little bit of stodginess? Speech given by Sir Jon Cunliffe, Deputy Governor Financial Stability, Member of the Monetary Policy Committee, Member of the Financial Policy Committee and Member of the Prudential Regulation Committee  Cumbria Chambers of Commerce, Kendal Friday 13 July 2018  1  All speeches are available online at www.bankofengland.co.uk/speeches  “In my view both as a citizen and as a policymaker, a little stodginess at the central bank is entirely 1  appropriate”  Alan Blinder’s 1999 advice to central bankers, quoted above, was not, I am pleased to say in these fitness conscious times, an injunction on the appropriate nutrition for monetary policy makers. Rather, it was advice on how to respond to uncertainty or, to be precise, the need for caution when faced with a particular type of uncertainty – uncertainty about the impact of monetary policy on the key variables in the economy it seeks to influence. But I would like today to look at the case for ‘stodginess’ when faced with uncertainty more generally about possible changes in how the economy works and the ‘model’ of the economy that policymakers necessarily have in their minds. Uncertainty, as I have noted before is the natural environment of monetary policy. There is a large academic literature on the optimal way for policy to deal with different types of uncertainty. But I would like to look at these issues first in the context of my time on the MPC and then in relation UK monetary policy going forward.
Since then the picture in the UK has been clouded by the impact of the Brexit vote. The global picture however does I think provide evidence of the slow healing story. Having grown at rates below pre-crisis norms for the post-crisis period, the world saw an increase in growth rates from around the middle of 2016. That return to stronger growth was broad-based both in that it was true for the whole of the G7 – excluding the UK – and emerging markets in aggregate and that it was driven by a pick-up in investment not just consumption. At the same time, in the US, partly in response to very low levels of unemployment, pay and inflation have risen from subdued 1-2% to rates closer to 2-3% over 2015 to 2018. So is there still a case for any ‘stodginess’ in the approach to monetary policy in the UK? Headline CPI inflation is running at 2.4% above its 2% target. The overshoot, however, is entirely due to imported inflationary pressure. This has come primarily from the post referendum depreciation in sterling plus some more recent pressure from the increase in oil prices. The inflationary pressure from sterling’s depreciation is already passed its peak. In May the MPC forecast that CPI would be at 2.2% by the year end. The MPC’s remit is to keep inflation at target ‘at all times’.