But what we were able to do - given that inflation was marginally below target - was to try to compensate for that external weakness by stimulating domestic demand here in the UK. The Bank sought to do this by cutting interest rates to buoy up consumer spending. And the Government has stepped up its own spending, which was certainly helpful in the recent international environment. Although we couldn't avoid an overall slowdown altogether we did manage to keep the UK economy as a whole moving forward despite the recession in the internationally-exposed sectors of manufacturing. In fact overall GDP growth in 2001, at 2.4%, was by some margin, the highest among the G7 countries, and the rate of UK unemployment is currently the lowest, on a comparable basis, in the G7. And interest rates are, as I said, the lowest they've been in this country in a generation. Of course we'd all have been much happier with better balanced growth. Stimulating domestic demand to offset the external weakness - the only option available to us - was very much a second best option, and not without its own risks, but it was better than doing nothing at all. That would have meant a much sharper slowdown, and probably recession, in the economy as a whole. And, given the fact that inflationary pressure remained subdued, it would have meant a quite unnecessary loss of overall output - and income and employment. In effect we took the view that unbalanced growth was better than no growth.
And provided it does not happen too abruptly, that would be the best possible outcome. But if consumer spending were not to moderate of its own accord, we would, in the context of strengthening external demand, clearly need at some point to consider raising interest rates to bring that moderation about. I don't suggest that the timing of any such move is imminent - that will obviously depend upon the timing and the strength of the recovery abroad and on the strength of domestic demand as we move forward. BIS Review 19/2002  3  And that, Subhash, is of course my answer to your second question - "what precisely will happen to interest rates?" In case any of you are confused, I think that what I said was that interest rates will rise - unless they fall or stay the same! Mr President, there is no doubt that the past year or so has been a difficult time for the world economy which made life increasingly difficult for the internationally-exposed sectors of our own economy. We are not yet altogether out of the wood, but there is increasing light between the trees. I am "cautiously optimistic" that the overseas environment will improve as we move through 2002, and that by this time next year we here in the UK will have seen a return to somewhat stronger and better balanced growth, with unemployment not far above its recent lows, and with continuing low inflation.