If that was so, the additional base effects from last year would mean that reported consumer price inflation would still reach towards 3%, before falling back to 2% next May. That’s the base effects at work. Second, and beyond that, additional price pressures can arise from the various shortages caused by imbalances in the recovery of supply and demand, as the latter recovers more rapidly than the former. But these imbalances should not last. Let me take an example from the US to illustrate. The continuous lumber contract – highly relevant for house building there – rose from around $ pre-Covid to around $ in early May, as the price rose in the face of inelastic short term supply. However it is now down to below $ as more lumber supply comes onto the market, and there is a shift to satisfy the higher demand at a lower price. Third, we expect to see a switch from demand for goods towards services as restrictions are lifted, which should rebalance the composition of demand. Over time, this should lead to an easing of inflation as spending is redirected towards sectors with more spare capacity. But, initially, that rebalancing may be uneven. Here in the UK, over recent weeks we saw an initial very strong pick-up in retail sales and restaurant table bookings, the growth of which has already eased off. Where supply returns more slowly than the initial surge in demand, we may see a temporary rise in prices.
Andrew Bailey: It’s a recovery, but not as we know it Speech by Mr Andrew Bailey, Governor of the Bank of England, Mansion House, London, 1 July 2021. * * *  Introduction Lord Mayor, there has been nothing usual about the last sixteen months. Even long-standing neighbours like the Bank and the Mansion House have had to resort to video conferences rather than popping round for a word. And one of the trickiest issues for all of us is dress code and etiquette – is this a ties on or off video, who knows? I can admit that I don’t seem to be a very good predictor of dress code. But you did throw me not long ago Lord Mayor, when we had a video call about an hour before we were both speaking at an event, and I can reveal that you were dressed in a Mansion House bomber jacket. So, white tie to black tie to bomber jacket. I should say that by the time of the event, the Lord Mayor had changed into something more conventional. The story so far Conventional is not a word I have used about the performance of the economy in the last sixteen months. Last calendar year, UK GDP declined by an annual growth rate of 9¾%, and based on our last forecast in early May we expect it to grow by 7¼% this year. It’s more meaningful to express the level of activity relative to the end of 2019 (pre-Covid).