David Ramsden: That was the year that was

Speech by Sir David Ramsden, Deputy Governor for Markets, Banking and Resolution of the Bank of England, at the Bank of England Watchers' Conference, organised by the Money Macro Finance Society and King's Business School at King's College, London, 24 November 2022. 

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

Thank you for the invitation to speak today. I am particularly pleased that I have close links with the two institutions, the Money Macro and Finance Society and Kings College London, who have organised this first Bank-watchers' conference.

In the spirit of the sixty year old TV programme that inspired my title I want to give my personal review of why the economy, and in particular inflation, turned out to be very different over the past year, and suggest some potential consequences for the MPC's approach to forecasting the economy and setting policy to hit the 2% inflation target. As a member of the MPC I hope to be able to do justice to how our thinking has evolved but I should stress at the outset that these are personal observations, which will nevertheless hopefully help set the scene for discussions at this conference.

In my other monetary policy speeches this year I've focused on the impact of shocks. Today I'm going to look more through the lens of the uncertainty generated by those shocks, which has made the course of the economy in general and inflation in particular increasingly hard to predict. Uncertainty has come not just from new shocks hitting the economy, most notably huge increases in energy prices, but also from unexpected developments, particularly in the labour market, as well as from other sources, like the on-going impact of Brexit and the pandemic.

Economic uncertainty can be illustrated in various ways. Chart 1 shows a market-based measure of volatility two years ahead, the horizon for monetary policy, which has been on a sustained and steeply rising trend over the last year, and spiked very recently at a much higher level even than during the global financial crisis.