It is a call grounded in the experience of the past quarter of a century, as embodied in wage equations estimated over that period.6 On that basis, in our forecast the easing of domestic inflationary pressures is achieved without the UK falling into recession. But, by nature, it is also a call surrounded by uncertainty. The structure of the UK labour and product markets may be changing, rendering the experience of the past twenty years less relevant for the outlook of wages over the forecast period. The pandemic has lowered labour force participation rates, while Brexit may have changed the structure of both labour and goods markets, reducing the discipline of competitive pressures on the evolution of domestic margins and costs. The environment created by higher international energy and goods prices may also have implications. To the extent that any implied deterioration in the terms of trade is permanent, there will be a real hit to UK income that must be absorbed by some domestic actor. 3  All speeches are available online at www.bankofengland.co.uk/news/speeches  3  So, in the end, someone will have to bear that cost. The important question for monetary policy is how that happens; in particular, how pragmatic and realistic UK firms and households are in accepting the macroeconomic implications of the higher imported energy and goods prices.
In Switzerland too, vulnerabilities in the residential real estate and mortgage markets have increased since the onset of the pandemic. First of all, numerous indicators point towards increasing overvaluations in the residential real estate market. Slide 3 shows, for apartment prices, the simple price-to-rent indicator, as well as valuations based on different models and underlying assumptions, for example regarding future interest rates. Based on this range of assumptions and models, the SNB currently measures the overvaluation in apartment prices to 12  Cf. ECB, Financial Stability Review, May 2021, p. 35; Board of Governors of the Federal Reserve System, Financial Stability Report, May 2021, p. 20, Reserve Bank of New Zealand, Financial Stability Report, November 2021, p. 14. 13 Cf. ECB, Financial Stability Review, May 2021, p. 35; and Bank of Canada, Financial System Review, May 2021.  be between 10% and 35%. 14 This range of overvaluation has increased since the start of the pandemic. Moreover, we have observed an increase in affordability risks over recent years as measured by the rising LTI ratios of new mortgages (cf. slide 4). To maintain banking sector resilience in the face of these increased vulnerabilities, the Federal Council reactivated the SCCyB in January this year to a level above the pre-pandemic one, following a proposal by the SNB. This has brought the SCCyB to 2.5%, its regulatory maximum. As a complementary measure, the self-regulation guidelines, which were last tightened in 2019, are still in place and should contribute to containing a further increase in vulnerabilities.