Underlying forces that were created by the financial crisis and that would themselves keep inflation low have been offset by other factors that have kept inflation above target for much of the past year. These factors are well known but it is important not to forget the likely scale of their impact. Around one quarter of the goods that enter the basket for calculating the UK CPI are imported. The 25% depreciation seen since 2007 would – given that imported goods and services account for around a quarter of the consumer price basket – add a bit above 6% to the level of the CPI. Over a three-year-period that would generate 2% a year higher inflation. We have also seen the VAT rate cut and then increased. When the cut was having its largest impact on the annual rate of inflation last year the CPI inflation rate fell to 1.1%. The subsequent rise in VAT at the start of this year has helped push inflation back above the target by about the same amount. At the start of next year there will be another VAT rate increase – and that is likely to keep inflation above the target a bit longer. I am not blasé about that. That is why I said that I thought we face a risk in the UK of not doing enough to bear down on inflation. But there is also a risk of tightening monetary policy too soon.
For VBI to work, the desired collaboration has to bring in not just our market players, but also other non-financial stakeholders, to pool critical skills and infrastructure that reside beyond our terrain. By expanding our network, we will be better able to deliver far greater values that otherwise could not be achieved if we were to depend on limited capabilities within the financial industry alone. With stronger collaboration, I believe there will be much more that each individual can learn from one another. In this context, the Community of Practitioners comprising committed Islamic banks, will be instrumental in pioneering advancements in VBI. The Community of Practitioners will serve as the nucleus for other collaborative efforts. Networks to be formed will comprise a diverse group, from ventures and corporates to knowledge and advocacy institutions. Through the exchange of knowledge and experiences, as well as coordinated actions to address implementation issues, the Community of Practitioners can help accelerate the execution and amplify the benefits of VBI. I would also like to thank the panel members that will take part in the Panel Discussion today, which also includes representatives from the Community of Practitioners. We can certainly gain greater insights from the panel members who will elaborate further on the VBI approach and provide interesting perspectives on its implementation. In conclusion, while the Malaysian Islamic financial sector has made great strides since its inception over 30 years ago, the next growth frontier in Islamic finance is in realising its potential to create greater socio-economic impact.