I had been in favour of an independent central bank long before the Chancellor’s announcement in 1997. I trust Members will believe me without my having to search through past writings to prove this.

My views have, if anything, been reinforced by the experience of the last two years. Indeed the Bank’s performance has been somewhat better than one might have had a right to expect.

This does not mean that every decision was right. In particular, I am not at all sure that the economy was as overheated in 1997-98 as the majority of financial opinion seemed to consider. But the Bank was able to reverse its tightening very quickly; and independence could have helped here.

The main new event has been the birth of another independent central bank, the ECB. In my view both the operational independence of the Bank of England and the ECB offer potentially satisfactory frameworks for non- inflationary growth. The ECB may have a slight advantage because its mandate cannot be changed without an amendment of the Maastricht Treaty, while Parliament could theoretically change the status of the Bank of England at any time; and some future Chancellor could emasculate it by inappropriate inflation guidelines. As I mentioned in my oral evidence, the ECB has come in for quite unfair criticism for lack of transparency and for supposed excess deflationary zeal.

Of course support for an independent Bank of England is compatible with some criticisms of its approach. What follows is a combined commentary on the Chancellor’s mandate and the Bank’s interpretation of it.

1 There is too much focus on a two year horizon. In the essay I presented to the Committee I tried to explain that two years was too long for a reliable inflation assessment based on information in the pipeline, but too short for simulating the implications of a worrying inflationary or deflationary takeoff.

2 Some concern for "short-term" consequences for output and employment should be admitted. It is farcical to pretend that the only reason for worrying about recession or stagnation is that inflation would fall below 2½ per cent. It is equally farcical to pretend that an inflation rate lower than the target would be a policy failure unless it were associated with low growth and employment - which it might not always be.

3 Econometric forecasts and simulations have a role. But they appear to have too privileged a position in Bank assessments; and there should be some place for broader political economy based contributions. While information from business and industry is always useful, I do not believe that specific sectors of the economy should be represented as interest groups.