"So let me turn to monetary policy. The Governor of the Bank of England talked about the NICE decade: ten years of non-inflationaryconstant expansion. Compare that to the current challenges. No-one predicted the spike incommodity prices that we have seen in the last year - or their volatility.
This makes the job of MPC much harder. The two open letters that I have received from the Governor this year make this very clear. That is not the only global challenge facing central banks. Many think the global credit crunch means interest rate decisions now take longer to affect economic activity. And uncertainty in financial markets is translating into currency volatility.
Some have called for the Government to change the way the Monetary Policy Committee sets interest rates. But the global challenges we face today are no reason for changing the remit of the Bank of England. The objective, price stability, is the right one. The means of achieving it, by inflation targeting, is right too. What matters is that inflation expectations remain anchored.
That's why tonight I want to reiterate my full support for the existing remit of the Bank of England. Our monetary policy framework is, as the Governor pointed out in hisMais Lecture three years ago, based on constrained discretion. Inflation will come back to its 2 per cent target - a credible commitment. But there is also "discretion about the horizon over which inflation is brought back to target".
In exercising this discretion, the MPC can support, in line with its statutory requirement, the Government's wider economic objectives. Surely, some have said, monetary policy needs to take into account the price of assets, such as house and share prices. This, they say, is the only way to prevent further volatility.
The newly independent Office for National Statistics has been, for some time, working to agree an EU-wide measure of housing costs. This is difficult - there is no international consensus on how to include such measures in inflation - but it must be a priority.
Beyond that, developments in asset prices can affect consumer price inflation, of course. And it's entirely appropriate for monetary policy to take that into account. But we should do nothing in terms of policy objectives that would undermine the achievement of price stability.
As Mervyn King said to the Treasury Select Committee in the summer, if interest rates had been raised by enough to burst a bubble in the past, "the number of people who would have been thrown out of jobs would have been far larger than the prospect with which we are now faced -because if would have required a massive rise in interest rates to break the bubble".
In short, while the remit we have set the Bank of England is right, the conduct of monetary policy today will have to contend with difficult global forces. And I believe we need to ask difficult questions about the effect of international price shocks, the global credit crunch, and currency volatility."
So while in the medium term still sticking to the economic priciples that have been followed for the last decade on inflation, the door has been opened for the MPC to cut hard as proposed by one of its members, Professor David Blanchflower, who until recently was the only member voting for rate cuts.
Speaking to an academic audience in Canterbury Professor Blanchflower said: "My view remains that interest rates do need to come down significantly - and quickly,"
"If rates are not cut aggressively we do face the prospect of a relatively deep and long-lasting recession."
"It is even possible that this event may turn out to be more significant than the 1929 crash which primarily involved bank failures in the United States," he added
