But the balance of evidence so far seems to me to suggest that MPC’s May forecast of the growth path remains broadly intact. And, crucially, that the domestic economy is likely to generate the relatively gentle inflation pressure necessary to meet the target over the next two years, as the current external inflationary pressures from sterling’s depreciation wane. The May forecast was of course conditioned on a market yield curve that implied a limited and gradual tightening of 75 basis points over the forecast period. 8  All speeches are available online at www.bankofengland.co.uk/speeches  8  So has the need for a stodgier approach now gone? It seems to me that while diminished, there remains considerable uncertainty about the supply side. Domestic inflation pressures, while strengthening a little are not yet established at levels consistent with inflation at target (Chart 8). Pay growth has established itself in the 2.5-3% range. But the latest readings do not signal strongly that pay growth will make the next step to establish itself firmly in 3% territory in line with the May forecast. 12  We may still be underestimating supply in the labour market. 13  In short we are still learning about the relationships between key economic variables in the post crisis economy and are still a long way off the old rules of thumb. This for me still implies an approach with a little more resistance in our reaction to developments. Such an approach is not, however, a stopped approach.
This approach combines mobile banking solutions with person-to-person contact, except that the customer is not engaging with a bank, but rather with a supermarket counter staff, grocery shop owner, post office or village headman. The elements of trust, Know Your Customer and value-added advisory services can be more effectively met using this approach, without the corresponding high investment cost of establishing physical banking branches. Today's forum provides an excellent opportunity for all of us here to exchange ideas and experiences in these areas. Policy and regulatory concerns pertaining to branchless banking Let me now turn to my second point, which is about the policy concerns of regulators in relation to branchless banking services. The first concern is related to the need to continuously balance between prudential controls and allowing innovation to flourish within the financial sector. To site a recent well known example, the events in the US sub-prime markets and derivative products serve as a good lesson where innovation significantly outpaced the capacity of the regulatory environment to exercise prudential oversight, and prevent distress to the financial system. The environment within which branchless banking will flourish requires a great deal of innovation in terms of executing transactions, maintaining proper audit controls and ensuring fraudsters do not take advantage of unsuspecting customers. As regulators we are particularly concerned where deposits are accepted by non-bank entities, acting in the capacity of an agent to a financial institution.