The estimated regression line has clearly shifted to a lower position since the crisis and the period of weaker productivity growth that has ensued. However, if people come to accept the implications of that weaker productivity trend for the real wage increases they can expect to receive – the “norm” for real pay growth being one thing that determines the position of the Phillips curve – that’s precisely what you’d expect to see. It would also shift leftwards if structural improvements in the labour market had lowered the equilibrium rate of unemployment. The MPC reduced its estimate of that equilibrium rate, from 5% to 4½%, in February. In real time, as it’s happening, it’s statistically  Chart 10: Phillips curve: down but not out  difficult to distinguish a shift from a flattening and there is clearly room for caution about our forecasts for growth of wages and unit costs. But, over time, I think the evidence looks more in favour of the former. The curve still seems to have a slope – all else equal, a tighter labour market is likely to mean faster wage growth. Conclusion  Sources: ONS, Bank of England, and Bank calculations. I was in Aberdeen earlier this year and, when asked by a wily reporter what I planned to vote at 11  the following MPC meeting, fobbed off the question by referring to a number of “imponderables” . I’ve talked about some of those today.
There is another lesson that I draw from this history, namely that there must be some difficult impediments to achieving the goal of institutional stability in financial regulation. To start with, achieving consistency and clarity in identifying the objective of regulation has been a problem in the past. The new approach anchors the PRA’s primary objectives of the safety and soundness of firms and the protection of insurance policyholders in the broader goal of the stability of the financial system. This very clearly ties together micro and macro-prudential regulation, whose objectives are consistent. And, we now have a secondary objective around the competition implications of our actions, which I welcome. Just under two weeks ago we announced changes to the Bank of England’s strategy and structure. In doing so, we adopted a single mission, namely to promote the public good through achieving and maintaining financial and monetary stability. This single mission is much more than just the speak of management, it is a clear change intended to promote the integration of the Bank of England’s objectives of monetary and financial stability. This integration of objectives into a single mission represents a very deliberate decision that the Bank of England should not be organised as a series of silos defined by our different statutory objectives and by the structure of policy making committees given to us in legislation.