Ben Broadbent: Reliable partners

Speech by Mr Ben Broadbent, Deputy Governor for Monetary Policy of the Bank of England, at the Gresham College, London, 30 March 2022.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Accompanying technical appendix can be found on the Bank of Englands' website. 

Good morning. It's a pleasure to be here at Gresham College, a place that has held public lectures on important societal questions for over four hundred years. That makes it one of the few City institutions that's been around longer than the Bank of England. I would also like to thank both NIESR and the Money, Macro and Finance Society (MMF) for organising the event. Over the years the work of both institutions has been invaluable to the UK policy community.

We are living through the most extraordinary – and in many ways an extraordinarily unwelcome – time. Russia's unprovoked attack on Ukraine has brought war to Europe for the first time in decades, with all its terrible humanitarian consequences.

From an economic perspective, coming on top of what was already a very steep rise in the cost of globally traded goods, in the wake of the pandemic, the invasion has led to substantial rises in the cost of energy and other commodities. As a big net importer of manufactures and commodities it's doubtful that the UK has ever experienced an external hit to real national income on this scale. From the narrow perspective of monetary policy it will result in the near term in the difficult combination of even higher inflation but weaker domestic demand and output growth.

However, the MPC has already said quite a bit about these things, individually and collectively, and – dramatic though its economic effects have been – my topic today is not this awful conflict or the immediate questions it poses monetary policy. I've no doubt we will discuss these things in the Q&A. Instead, I wanted to talk about something more general, namely the communication of monetary policy, and specifically the role of "forward guidance". I will take this to mean statements by monetary authorities about future policy.

The question "what's going to happen to interest rates?" is asked of us routinely. (Sometimes it's phrased directly, sometimes more circuitously, but it always seems to come in one form or another.) And perhaps it's understandable that people should want to know, particularly in an environment as uncertain as this. If it were possible to eliminate or reduce at least one source of unpredictability, wouldn't that be a good thing? And since the MPC is in control of interest rates why can't it just tell us what it's going to do?