And unemployment is close to its lowest level for a quarter of a century. In my opinion, that has not happened by chance, but is the result of a range of policies. Achieving low and stable inflation is the best contribution that monetary policy can make to the wider economic goals of sustainable growth and employment. Having an inflation target certainly does not mean that we take no interest in real  BIS Review 87/2001  1  activity. We have discretion over how rapidly we try to bring inflation back to target when and if it diverges from 2½%. And we regularly publish our best guess about the likely future path of growth up to a two year horizon. But the aim of policy is clear - we do what is necessary to keep inflation on target. So far, I have spoken as if monetary policy is carried out by faceless bureaucrats hidden deep within the vaults of Threadneedle Street. Of course, as any of you who read the Diary columns regularly will know, nothing could be further from the truth! There are nine of us on the Bank's Monetary Policy Committee, and we meet once a month to make our interest rate decision. This is a rigorous process, and rightly so. The first stage occurs on the Friday before the policy meeting, with a briefing by Bank staff on all of the data that have been released over the previous month.
For the first time in five quarters employment slightly exceeded the corresponding year-back level. The job vacancies indices reveal that demand for labour is gradually rising again. The favourable overall picture is confirmed by the economic barometer of the Institute for Business Cycle Research at the Swiss Federal Institute of Technology. How do we assess economic development in the near future? For this year, we are forecasting economic growth of close to 2.0%. Growth is therefore likely to be underpinned by both higher exports and stronger domestic demand and to lead to a gradual decline in unemployment as from the second half of 2004. Towards the end of 2005, the economy should again be working close to capacity, and this will influence price formation. Our inflation forecast of March already showed that, given an unchanged interest rate of 0.25%, inflation would exhibit a rising trend as from the second half of 2005. The reason was to be found in improved capacity utilisation and unemployment declining in step with the more favourable economic conditions. This assessment has not changed in any way. The new forecast, adjusted for the 25 basis points rise in the three-month Libor, now suggests that, as from the second quarter of 2005, inflation will fall short of the figure predicted by the last forecast. It makes it clear that the normalisation of the monetary policy course now initiated improves inflation prospects. The monetary development Our inflation forecast is much less certain over a longer horizon.