As the MPC has signalled, a low for long interest rate environment will likely be with us for some time. The MPC’s new guidance that any adjustments in rates, when they come, will be limited and gradual helps provide confidence to households and businesses that the MPC won’t take risks with the recovery. This in turn helps make the attainment of the inflation target more likely. At the same time, policymakers across the Bank’s statutory committees are fully aware that an environment of relatively low and predictable interest rates could encourage excessive risk taking in financial markets and by households.22 This puts a tremendous burden on both microprudential supervision and macroprudential management. Moreover, the nature of a rapidly evolving global economy reinforces these pressures. Sustained imbalances across countries, intense capital flow volatility and powerful disinflationary forces driven by the integration of the other half of humanity into the global economy will buffet our economy and financial sector for years to come. The Bank can help turn those challenges into opportunities. Through the coordinated use of the Bank’s tools, risks to monetary and financial stability can be mitigated. Through changes to the hard and soft infrastructure of markets fair, open and competitive markets can be re-built. Through ideas and engagement, the global financial system can be reformed to secure an open, resilient system in which all countries have confidence and in which British businesses can thrive.
The model used for monetary policy of decisions being made by a committee made up of both Bank of England executives and independent experts has been expanded to financial stability with the creation of both a Financial Policy Committee and a Board of Prudential Regulation. As I have argued, those policy committees will be more effective if they have access to the broadest range of the Bank’s analysis and information and are as well informed as possible about each other’s reaction function. The now very wide range of the Bank’s responsibilities also creates a need to strengthen the oversight arrangements for the Bank as a whole. For delivery of our statutory objectives, the Bank is accountable to the public, through Parliament’s Treasury Committee. That accountability is being reinforced. Parliament has created an Oversight Committee of 8 non-executives who are in the Bank but not of the Bank. The Government has today announced the appointment of Anthony Habgood to lead the Bank’s Court of Directors and the Oversight Committee. I welcome the appointment of someone of his depth and breadth of corporate experience. Independent oversight by the committee he will chair can strengthen the Bank’s legitimacy and effectiveness. The Oversight Committee has access to internal papers, is able to observe meetings of policy committees, and is responsible for reviewing all aspects of the conduct of the Executive of the Bank, including the delivery of policy, the design of and adherence to rigorous processes and procedures, and the monitoring of our transparency and openness.