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My Lord-Lieutenant, High Sheriff, Ladies and Gentlemen
As we head into a challenging year for the world economy, we have seen more positive sentiment in financial markets, and, at home, a fall in inflation. But none of this implies that 2012 will be an easy year. We begin it with the level of output more than 10% below a continuation of its pre-crisis trend, and the unemployment rate at a 15-year high. These are huge changes in our economic fortunes. Tonight I want to talk to you about what is happening to our economy, what it means for the years ahead, and how the Bank of England is responding.
A year ago, in a speech in Newcastle, I explained that inflation was uncomfortably high, and was likely to rise to between 4% and 5% in 2011, before falling back in 2012. With a fiscal consolidation and tight credit conditions, prospects for domestic spending growth appeared weak. In the event, outturns were even worse than expected. Inflation reached 5.2% in September and growth last year was substantially weaker than most people predicted at around only 1%.
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