That the attainment of the 7% threshold will not be associated with any immediate need to raise Bank Rate is reinforced by recent developments suggesting that UK inflation pressures are more contained. In particular, inflation has fallen from 5% in 2011 back to the target for the first time since 2009. Global inflation is subdued, with both euro area and US consumer price inflation now less than 1%; oil prices have fallen by 4% relative to a year ago; other commodity prices have fallen by more than 10%, and sterling has appreciated by almost 9% since last summer. All of these developments will hold back imported inflation pressures that have to a great extent explained the above-target inflation over the past five years. The Bank’s assessment of how to evolve guidance to changing circumstances will begin in our February Inflation Report. The MPC will consider a range of options to update our guidance, recognising both what we have learned about the behaviour of aggregate supply in the economy as well as the more benign inflation outlook. The MPC has noted that when the time eventually comes to begin to move away from emergency settings of policy, any such move would be gradual. The degree of stimulus will remain exceptional for some time. That should help reassure British business that the path of interest rates will be consistent with a sustained recovery – that is, with escape velocity. This recognises that many of the headwinds holding back the economy will remain for some time yet.
By making it safer and fairer we can put in place the conditions for it to thrive. But whether or not it thrives will rest on the efforts of individuals and organisations to re-establish the system’s reputation for integrity. While regulators will fix the mechanics of benchmarks in markets ranging from LIBOR to FX, only private individuals and institutions can reform the behaviour that has made such changes necessary. Changes to the structure of compensation will better align the incentives of bank staff and their shareholders, but not every risk can be anticipated. Even if such a package could be devised it would not internalise the impact of individual actions on systemic risks, including on trust in the banking system. For the system to operate with integrity, penalties for misconduct cannot be seen as a cost of doing business. Rather, banks must recognise that only exemplary behaviour can confer social licence to global financial capitalism. More fundamentally, integrity cannot be legislated, and it certainly cannot be bought. Only a perspective which takes into account the wider implications of actions can guide proper behaviour. And while regulators can promote competition, end the subsidy enjoyed by institutions that are too big to fail, and determine the appropriate split of remuneration between fixed and variable elements to limit risks to financial stability, only society, not regulators, can determine whether the absolute and relative levels of compensation are acceptable. 3.