If that happens, this summer’s crisis will influence the economy – and potentially the interest rates set by the MPC – for some time to come. Energy prices Let me now turn to the second of the global developments I mentioned earlier: higher energy prices. During the past month , the oil price has threatened to breach the $ a barrel. Just last January a barrel of oil cost $ four years ago, it cost less than $ Some of this is due to the weakness of the dollar. But the rise in sterling terms has been pretty spectacular too – from £ a barrel four years ago, to £ last January, to around £ now. At these levels, oil is almost back to its 1979 high, after correcting for inflation 3 . What’s going on? It’s always hard to disentangle underlying demand and supply factors from the speculative froth. It’s possible to point to some short run factors behind the recent surge. Stocks of oil across the OECD economies have been falling, at a time of year when they should be rising. This reflects temporary supply disruptions such as weather-related problems in Mexico and in the North Sea. As production comes back on stream, the market should ease. But short-run influences can only have this kind of leverage over the price because underlying market conditions are so tight. World demand for oil has been boosted by a strong world economy, led by booming emerging markets.
These include the reports from our own Agents around the country, drawing businesses such as your own. If you are one of our regular contacts, let me take this opportunity to thank you warmly on behalf of the MPC for your help. We may be making additional demands on you over the coming months. I hope my remarks tonight have helped to explain why your co operation is so necessary – and so valuable. BIS Review 136/2007  5