Monetary Policy and Financial Stability - speech by David Miles

In a speech to the Bristol Business Forum, David Miles - an external member of the Bank of England's Monetary Policy Committee (MPC) - explains his view of the appropriate policy response to the financial crisis.
Published on 15 July 2010

In describing the unprecedented level to which interest rates have fallen, David Miles argues that " has been right to loosen aggressively the stance of monetary policy because of the scale of the deflationary and recessionary forces unleashed by ... the crisis in the banking sector". He adds that "...fragilities in the banking system remain and pose risks that the recovery in demand and activity we have seen across Europe - including the UK - falters". The MPC's challenge is to balance "...risks that inflation of 1.0-1.5pp above target lasts long enough to become ingrained in expectations and affect behaviour so that it is hard to bring down, versus risks that the recovery in output becomes weaker and then disappears, leaving inflation pressures lower than is consistent with the target further ahead". David Miles notes: "I look forward to the day when it will be appropriate to tighten monetary policy since a return to more normal levels of interest rates would be a welcome sign that economic conditions were also more normal. But I do not think that is where we are today."

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