However, the most notorious movements in the exchange rate have originated in its fundamentals (figure 7). The recent appreciation of the peso is largely responsible for the lower inflation that will prevail in the short term.2 In our Report’s baseline scenario, CPI inflation will be around 2% annually until early next year, returning to near 3% by the end of 2019. Meanwhile, core inflation, as measured by the Consumer Price Index excluding Food and Energy (CPIEFE), will be close to 1.5% by the middle of this year. At the same time, we estimate that once these pressures ease and the effects of the narrowing activity gap are more notorious—it is expected to close faster than we thought before—inflation will converge to the policy target during next year (figure 8). In this context, the Board will maintain the current monetary impulse until inflation shows clear signs of converging towards the target. This translates into a similar trajectory to the one that can be deduced from the surveys, that is, an MPR hovering around its current levels for several more months, but that by the turn of 2019 will have already begun a gradual normalization. Such normalization is likely to be completed beyond the monetary policy horizon of 24 months (figure 9). These projections, as always, are subjected to various risks. On the external front, in terms of its impact on local activity, the risk balance is downwards biased. The main risk is the possibility of a sharp deterioration of global financial conditions facing emerging economies.
10  All speeches are available online at www.bankofengland.co.uk/news/speeches  10  Arrangements for shared supervision, therefore, need to be worked out carefully, subject to agreed procedures and, crucially, recognise the primacy of the lead supervisor. And, given the systemic importance of global infrastructure to many jurisdictions, they must above all be stable. And finally, these arrangements need to be reciprocal and proportionate. This means as I have said, the degree of assurance depends on the degree of risk. In areas for example where there is no cross-border activity, there is little need for assurance on cross border risk. In the end, both sides will need to make a balanced assessment. It is perhaps human nature on either side to want maximum control and minimum responsibility. But a stable and effective regulatory and supervisory relationship cannot be built on those lines. I am an optimist in this area. Of course, I expect some change. But I also believe we have a very solid foundation on which to build the broad supervisory and regulatory relationship necessary for the UK and the EU economies to continue to benefit from our cross border financial connections and from the integration of global and European markets that this encompasses. I am here talking, with our responsibility for financial stability in the UK, about the management of financial stability risk on both sides. I am not, to be clear, talking about trade negotiations.