It was Gordon Brown, then chancellor of the exchequer, who proudly announced in his March 2007 budget that there would be no more boom and bust. There was indeed a prevalent belief within the Bank of England and the Treasury at the time that we had somehow conquered ‘macro’. During the ‘great moderation’, the period between the late 1980s and 2007 when the economies of most Western nations saw a relatively low volatility of output, policy-makers were lulled into thinking that these long periods of steady if unexceptional growth would become the norm. 

The world had lived through the two major oil crises of 1973 and 1979, with the devastating imbalances these had created. If such external shocks could be avoided, then there was no reason why, with sensible policies and inflation under control, stability could not last forever. The central banks were