This suggests underlying productivity growth, and with it the rate of growth of the economy’s supply capacity, may have fallen back during the recession. And that is corroborated by business surveys, which suggest that manufacturers are, on average, back to pre-crisis utilisation rates, while the margin of spare capacity has also closed significantly in services firms (see Chart 8). It is, though, unclear why underlying productivity growth should have been quite so weak. To be sure, the collapse in business investment has resulted in a somewhat lower rate of growth  3  Taken from the IMF’s World Economic Outlook, October 2009. BIS central bankers’ speeches  3  of the capital stock, but estimates suggest that can only account for a modest slowing in underlying productivity growth. And while some businesses will certainly have been forced to reduce the scale of their operations or close because of lack of access to credit, corporate bankruptcies have remained at relatively low levels. Overall, there are few objective indicators to suggest a major hit to capacity growth from the crisis and subsequent recession. It is possible that the true fall in output during the recession has been overstated in the official statistics4, but the extent of the mismeasurement would have to be very large to reconcile all the facts. It is all somewhat puzzling! Even if the margin of spare capacity in businesses is no longer all that great, the elevated level of unemployment should have put downward pressure on inflation.
Opening remarks to the Bank of England ‘Independence – 20 years on’ Conference Remarks given by Mark Carney, Governor of the Bank of England  Bank of England ‘Independence – 20 years on’ Conference, Fishmongers’ Hall, London 28 September 2017  1  All speeches are available online at www.bankofengland.co.uk/speeches  Welcome to this conference marking 20 years of independent monetary policy making in the UK. We are here because long and varied experience has shown that price stability is the best contribution monetary policy can make to the public good. High inflation hurts the least well off in society the most. It distorts price signals, inhibits investment, and ultimately damages the economy’s productive capacity. Equally, deflation imperils growth and employment, and, in the extreme, leads to financial ruin and economic collapse. The happy medium is low, stable and predictable inflation. A little inflation greases the wheels of the economy, and it gives monetary policy space to deliver better outcomes for jobs and growth when shocks hit. Recognising the value to society of price stability is one thing, delivering it is quite another. The Bad Old Days Prices were anything but stable during the 1970s and 80s. With the collapse of Bretton Woods in 1971, UK monetary policy lost its nominal anchor. There followed a series of botched experiments, with targets for incomes, monetary aggregates and the exchange rate.