These investments in resilience – capital and liquidity standards, central clearing of derivatives, stress testing and resolution regimes to name a few – have hugely improved the financial system’s ability to handle shocks, including to interest rates. Over these years, having two committees has worked very well. Not just because of the complementary nature of our actions and accountability, but for practical reasons too. Page 7  The MPC and FPC both need to be immersed in detail to make their decisions. After extensive discussions of leveraged lending or cryptoassets, I’m certainly glad the FPC didn’t have to make an interest rate decision! Having separate committees gives each time to focus on its own domain. Of course some of my colleagues sit on both committees, so do have to make that mental jump – although not usually in the same day. That highlights a benefit of housing both committees in the Bank – some joint membership balances focused discussions with understanding each other’s actions and developments that are relevant for both committees. The liability-driven investment fund episode The most recent test for the two committees came in the autumn of 2022. We’d faced a sequence of very large supply shocks – from bottlenecks in global supply chains during the Covid-19 period and then the war in Ukraine, which had pushed up the global prices of traded goods and commodities. And there had been domestic shocks, most noticeably a reduction in the size of the workforce. All of this pushed inflation materially above the MPC’s target.
It is vital that the commitments made to achieving balanced budgets by 200304 be firmly followed up in the Member States concerned. A continuation along the path of fiscal consolidation is essential, as is vigilance in ensuring strict adherence to the medium-term plans and rigorous implementation of the procedures of the Stability and Growth Pact. Equally, the expected recovery should be seen as an ideal opportunity to strengthen efforts towards implementing comprehensive structural reforms – in public expenditure and revenues and product, labour and financial markets. Heads of State and Government confirmed this objective during their recent meeting in Barcelona. If implemented vigorously, such reforms could increase the growth of real GDP and employment on a sustainable basis. Past improvements in the functioning of markets, together with wage moderation, have contributed to strong employment growth and a considerable reduction in unemployment. It is therefore clearly in the interest of all countries to continue to rigorously implement the agenda agreed in Lisbon and recently confirmed in Barcelona. We are now at your disposal for questions. 2  BIS Review 22/2002