But it will need to be accompanied by corresponding moderation of the growth of domestic demand - after the offsetting stimulus of a year ago - if we are to maintain overall stability. That essentially is why interest rates in the UK have had to rise since last autumn. We are now in a position where the economy as a whole is again growing above trend - after a pause a year or so ago - while inflation is running - and has been running for nearly a year - slightly below the Government’s 2½% target. Looking ahead, there is the tantalising prospect of new factors that might help to hold the rate of inflation down, at least in the short term. There is evidence for example, although it is hard to evaluate, of more intensive retail price competition, squeezing retail margins across the board, and that could hold down prices, at least for a time. And this effect could intensify and extend further into the future as a result of the spread of e-commerce. And there is, on the supply-side of the economy, the possibility (though so far sadly not much actual statistical evidence) that the spread of IT will accelerate productivity growth across the economy - as it has in the United States, raising the underlying rate of potential output growth at least for a time.
Second, I would like to discuss the economic challenges we face and what it takes to address them. I am acutely aware that the focus of policymakers lies elsewhere for the moment. But let me be quite clear: economic success is also part of the solution in other fields. Therefore, mitigating economic risks deserves to be high on the political agenda. The ECB’s monetary policy: working and still flexible It was about three years ago that inflation started moving away from the ECB’s medium-term inflation aim of below, but close to, 2%. Since October 2013, inflation has been below 1%. Throughout 2015 headline HICP inflation in the euro area was very low or even negative, remaining under the influence of low commodity prices, and euro area annual HICP inflation was estimated at 0.4% in January this year. In parallel to this trend, we had to continually revise our outlook for inflation: while at the start of 2015, our staff was forecasting inflation to reach 1.5% in 2016 and 1.8% in 2017, in December they projected a rate of only 1% for this year and 1.6% for 2017. Against this backdrop, the ECB decided in December to act again. Our assessment of the monetary policy stance had two parts. First, we noted that the measures put in place since the summer of 2014 had been very effective. The monetary stimulus that they introduced led to a broad-based easing of financing conditions, stimulated credit provision, and has since provided substantial support to the euro area recovery.