Inflation and the Supply Side of the UK Economy

In his inaugural speech as a member of the Monetary Policy Committee, Andrew Sentance sets out his views on the principles which underpin the successful conduct of monetary policy and discusses the factors underpinning the growth of the supply-side potential of the UK economy. Since the mid-1990s, UK growth has been boosted by a shift to a lower equilibrium unemployment rate. In the absence of an alternative boost to growth from labour supply or productivity, the United Kingdom's annual GDP growth rate would fall back from the 2.8% recorded over the past decade. Immigration and rising participation in the labour force are currently helping to support the growth of potential supply but these sources of growth may not be sustained over the medium term