It was the first of the three big supply disturbances of the last year or so. Let me start by putting it into context. UK GDP recovered quite rapidly from the precipitous drop of the initial Covid period, but it did not soar away. That’s very different to the pattern of the US economy for instance. Put another way, in the UK we have had two years with very little growth overall. Page 4  The story of the recovery from Covid in terms of inflation had a global dimension. In many advanced economies, the pattern of demand shifted from services to goods, most notably in the US. These goods are much more traded than services, and this put pressure on global supply chains. That pressure was further affected by issues in China with the so-called zero Covid policy, and the impact this had on traded goods prices. The third disturbance has been caused by the actions of Russia in the build up to and subsequent illegal invasion of Ukraine. This is now the largest shock – concentrated in energy and some food prices. It is hitting the least well off hardest because they, necessarily, spend more of their income on essentials, notably food and energy. Recently some of the most outrageous nonsense I have ever heard has been spouted by the Russians, namely that the current global economic problems are caused by sanctions against Russia, not by Russia’s invasion of Ukraine. This is utter rubbish.
I have been involved in attending or speechwriting for this dinner for 25 years, and I well remember in the early days that the speeches of Lord Mayors featured each year a plea to get Crossrail agreed, started, finished. Well finally, Lord Mayor, you can notch that one up. Now, “getting stuff done” is not a lead in to a speech on reforming Solvency 2. I can hear the murmur of relief going round. Instead I am going to talk about the economy and monetary policy. I think I just heard someone say, can we have Solvency 2 for light relief please. Fair point, but no. A member of the public sent me an email recently, in which she said that she appreciated what I am doing, but can I please, please, please be more cheerful. I should say that I do seek earnestly to avoid the role of Private Frazer in Dad’s Army – we are not doomed, far from it. But we are in difficult times. From the perspective of monetary policy, these times are the largest challenge to the monetary policy regime of inflation targeting that we have seen in the quarter century since the MPC was created in 1997. That emphatically does not mean the regime has failed. Far from it. The regime was set up for times exactly like these. The regime, founded on central bank independence, is now more important than ever. The worth of any regime is tested in the difficult, not the nice, times.