Companies may lift the shutters and start to take the types of risks and entrepreneurial activities necessary for our long-run prosperity.8 Such improvements in the supply performance of our economy would greatly enhance the durability of the recovery. Diminished uncertainty may also bolster the impact from the past easing in monetary policy. The MPC has loosened monetary policy aggressively since the financial crisis, both by cutting Bank Rate to historically low levels and by the use of more unconventional tools, such  6  The costs associated with bankruptcy means that, in times of high uncertainty, a firm may opt to adopt a strategy which is most robust to their view about the world being proved wrong, sometimes referred to as “robust satisficing” (See Ben Haim (2010) for an overview). 7  My colleague David Miles (2013) made a similar point in a recent speech. 8  Bloom et al (2001), Bond and Lombardi (2004) and Gilchrist et al (2010) all discuss the constraining impact uncertainty can have on business investment. Reduced uncertainty may also make companies more willing to enter new markets. Disney, Haskel and Heden (2003) provide evidence that such activities are an important source of productivity growth. Lazear and Spletzer (2011) show that reduced uncertainty can prompt greater “churn” in the labour market leading to more efficient matching of skills to jobs. 4  BIS central bankers’ speeches  as Quantitative Easing and the Funding for Lending scheme.
Indeed, during the halcyon days of the so-called Great Moderation that preceded the financial crisis, it started to seem that Eddie’s ambition was no longer quite so demanding. But – as you all know – then came the crisis! That, combined with a commodity price boom and a sharp depreciation in sterling, meant that the days of GDP growth outstripping inflation quickly became a thing of the past. We’ve failed to live up to Eddie’s ambition for each of the past six years. The good news is that recent developments – on both growth and inflation – mean that we appear to be heading back towards an environment of which Eddie would have approved. Over the past six months, output has grown at an annualised rate of almost 3%, almost a quarter of a million new jobs have been created and indicators point to a continuation of strong growth. At the same time, inflation has fallen sharply and, at 2.2% in October, CPI inflation is as low as it’s been for four years. In terms of growth, the obvious question this raises is, why now? Why, after throwing everything bar the kitchen sink at the economy over the past few years, has the economy started to grow only now? Even more importantly, will the recovery last? Having seen a few false dawns over recent years, has the recovery really taken hold this time? And what does all this mean for monetary policy.