•  We expect total CPI inflation will remain fairly close to target throughout the projection period. That’s because in 2015 and into early 2016, as the upward pressure from energy prices dissipates, the downward pressure from retail competition should gradually fade and excess capacity will be falling.
But it is important that we distinguish this from the longer-term slowdown in potential output, since it remains ultimately a cyclical phenomenon and hence amenable to different policy tools. So how should policymakers respond to this mix of challenges? To be effective, the policy response should be comprehensive, consistent, well-sequenced and incentive-compatible. Monetary, fiscal, structural and macro-prudential policies all have a role to play.