How much discretion to give to the MPC and how much should remain with the Chancellor is an interesting question that was raised, but not fully resolved, in 1997 with the system of open letters which gives the Chancellor the opportunity to comment on the horizon over which the MPC plans to bring inflation back to target. So there are certainly aspects of the inflation targeting regime to consider. In assessing the current framework, however, there are two factors that should not be ignored. First, the primary responsibility of any central bank is to ensure stability of the price level in the long run. To drop the objective of low inflation would be to forget a lesson from our post-war history. In the 1960s, Britain stood out from much of the rest of the industrialised world in trying to target an unrealistic growth rate for the economy as a whole, while pretending that its pursuit was consistent with stable inflation. The painful experience of the 1970s showed that this illusion on the part of policy-makers came at a terrible price for working men and women in this country. The battle to bring inflation expectations down was long and hard, and involved persistently high levels of unemployment. Wishful thinking can be indulged if the costs fall on the dreamers; when the costs fall on others, it is unacceptable. So a long-run target of 2% inflation should be an essential part of our macroeconomic framework.
That has been responsible for  BIS central bankers’ speeches  1  an unusually weak recovery in consumer spending which, after falling initially by some 7%, is still more than 4% below its peak. The result is a large number of vacant retail premises – visible here in Belfast, as elsewhere. The second factor is the extent to which the balance sheets of the major UK banks had grown before the crisis hit, and had been financed primarily by borrowing. So the subsequent reduction in bank lending – the deleveraging – was greater here than in many other countries. That deleveraging has as its counterpart a reduction in the amount of (broad) money in the economy and a reduced willingness on the part of banks to expand lending to finance the recovery. And the third is the crisis in our main trading partner – the euro area – where the near term outlook is weak, and the longer term prospects for tackling the evident fault lines in the monetary union uncertain. The former means that our current account deficit has remained stubbornly high, and the latter is holding back corporate investment With a disappointingly slow recovery, and unemployment one million higher than before the crisis, the main aim of economic policy has been to generate both a recovery and a rebalancing of the economy, and bring unemployment down without putting at risk hard-won medium-term price stability. The Bank of England has played its part by administering a powerful combination of medicines.