I mean that quite literally: the weakness in productivity that we have witnessed means that much of the growth so far has been generated by increased hours worked rather than an increase in output per hour worked. Participation in the labour force has increased in recent years, as has average hours worked per week. Having demonstrated such flexibility, it is fitting that people are now beginning to enjoy the benefits of an increase in real wage growth. For comparison, following the 1990s recession Bank Rate stayed at its trough for 7 months before being increased again, and the equivalent number following the 1980s recession was only 6 months. Indeed were one to look solely at measures of the real economy relative to their value when previous tightening cycles began, you would have expected the MPC to have already begun raising rates by now (Chart 2). And I must admit to getting a gentle ribbing at the dinner table when I come home after each monthly MPC meeting to say that I have voted for no change in Bank Rate once again. “All that work to decide to do nothing!” say my children. BIS central bankers’ speeches  1  But there are good reasons for Bank Rate to have remained lower for longer this time.
Whatever the outcome, it will be important to maintain flexibility to respond to new data and events. The flexibility the MPC has had to pursue its target independently since 1997 has brought great benefits. The MPC has also shown flexibility in developing new instruments such as QE to achieve its goals. Similarly, as monetary policy begins to tighten, the MPC will be focussed on Bank Rate as the marginal tool of monetary policy, given it’s more flexible in nature than QE. And occasionally, we might also consider tyre tread depth, just to see if the post crisis economy reverts to pre-crisis patterns or whether we need to think about the future a bit differently. 6  BIS central bankers’ speeches  BIS central bankers’ speeches  7  8  BIS central bankers’ speeches  References Alesina, A. and Summers, L. (1993) “Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence,” Journal of Money, Credit and Banking, Vol. 25, No. 2, pp. 151-162. Brainard, W. (1967), “Uncertainty and the effectiveness of policy”, American Economic Review 57, 411–425. Broadbent, B. (2015) “The MPC’s forecasts and the yield curve: predictions vs promises,” Speech given at Reuters. Dison, W. and Elliot, D “Mean and modal Bank Rate expectations,” blog available on http://bankunderground.co.uk/ Evans, C. Fisher, J. Gourio, F and Krane, S (2015) “Risk Management for Monetary Policy Near the Zero Lower Bound.” Brookings Papers on Economic Activity.