The current long-term yields on some European government bonds already appear to have factored in the required adjustment gains to a certain extent. This creates great setback potential. It is therefore all the more important that policymakers ensure that the necessary progress is actually achieved. One may justifiably question their determination to see this through to the end.
Since the April 2006 Outlook Report, however, the Bank's outlook for economic activity and prices has been produced taking account of forecasts of the future policy interest rate embodied in market interest rates, instead of assuming that the policy interest rate will remain unchanged.