Over the past year the United Kingdom's Monetary Policy Committee has responded to the dramatic deterioration in the economic outlook with an equally dramatic easing in monetary policy. Bank rate was cut by 4.5 percentage points in just six months and by 1.5 p.p. in November 2008 alone. That was the largest cut for twenty-five years and is twice the size of the reduction made by any other G7 central bank in the past eighteen months. The MPC also voted to purchase £125 billion of assets financed by the issuance of central bank money – an amount equivalent to around 9 per cent of UK GDP.

The scale of that easing took many by surprise, and some of the decisions may, at first blush, look rather courageous. Devotees of the British television show Yes Minister may recall that Jim Hacker, the hapless minister, became very nervous whenever Sir Humphrey suggested that a decision of his was ‘courageous’. Central bankers can have similar instincts. When faced with big decisions, there is a temptation for caution to prevail: do interest rates really need to be moved by that much? Why not wait and see before resorting to the use of unconventional instruments?

Indeed, in the past the MPC has tended to move rates in relatively small, sequential steps. I would argue, though, that this is because, for much of the period since the establishment of the MPC, the outlook for inflation evolved relatively gradually.