Specifically, we decided to lower the interest rate on the deposit facility by 10 basis points to –0.30% and to extend the APP. The monthly purchases of € billion under the APP are now intended to run until the end of March 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its aim of achieving inflation rates below, but close to, 2% over the medium term. We will also reinvest the principal payments on the securities purchased under the APP as they mature, for as long as necessary. To help you appreciate the import of the overall recalibration of our asset purchase programme, you should consider that the extension of our net purchases to at least March 4  BIS central bankers’ speeches  2017 and the decision to re-invest the principal payments on maturing securities for as long as necessary will add EUR 680 billion – some 6.5% of the euro area GDP – in liquidity to the system by 2019, relative to the situation that would have prevailed under previous policies. This will strengthen our forward guidance on interest rates and ensure that liquidity will remain very supportive in the long term. There was very broad support among members of the Council for recalibrating our instruments to put inflation trends back on the path towards 2% that we envisaged when we launched our purchase programme.
Since August, inflation has fallen back to target (for the first time in 5 years) and unemployment has fallen rapidly towards 7%, so what have we learned on the journey towards our threshold? With the wisdom of hindsight, there have been three main drivers of the recovery thus far: a marked reduction in extreme uncertainty, the repair of the core of the financial system and significant deleveraging by households. These have driven a recovery in consumer spending and housing investment, which together have accounted for almost all the GDP growth in the year to Q3. As my colleague Ian McCafferty outlined earlier this week, there are also early signs of a recovery in business investment. The less good news is that the recovery has not – as measured at least – been accompanied by meaningful productivity growth. Given the continued openness of the economy and the credibility of macro policy, it is hard to think of any reason why there should have been a persistent deterioration the UK’s  1  My MPC colleague Ben Broadbent discussed these issues extensively in September 2013 in a speech at the London Business School, “Conditional guidance as a response to supply uncertainty”. 4  BIS central bankers’ speeches  productivity performance. In fact there are several reasons to expect productivity growth to pick up as the recovery proceeds. For example, until recently, the fragility of the banking system limited the reallocation of capital and labour from less to more productive activities.