In our latest assessment this was based on the belief that inflation was somewhat higher than now proves to be the case. But monetary policy does not have such a degree of precision that it can control inflation to a tenth of a degree. And, moreover, inflation in July was high and far above the inflation target even after the downward revision of the figure. In the discussion ahead of the interest rate decision, I and other members of the Executive Board highlighted the weak labour market indicators which uniformly pointed to a weaker development of employment, which is also in line with the Riksbank's forecast. After the decision, the Labour Force Survey for August has been presented. This shows that employment increased by a moderate 0.5 per cent on a 12-month basis, which is marginally lower than the Riksbank's forecast. At our September meeting, we had access to the initial version of the National Accounts for the second quarter. These showed that GDP did not increase at all compared to the previous quarter and increased by only 0.7 per cent on a calendar-adjusted12-month basis. Now that the revised version of the National Accounts has been published, we can see that growth in the first two quarters has been marginally adjusted downwards in both cases. This means that growth in the first quarter was 2 per cent on a 12-month basis and with calendar effects taken into account. The corresponding figure for the second quarter was 0.6 per cent.
In my view this trade-off explains why we have raised Bank Rate progressively since last December in increments of 0.25% after the first rise. We have judged what we need to do in the face of these very big external shocks which, assuming Bank Rate following the market path used for the May MPR forecast, will see inflation fall very rapidly next year, and return to target in 2023, and then go below target. But other things may not be equal, and we have been clear that we see the balance of risks to inflation as on the upside. Here, I would pick out the risks from domestic price and wage setting, and this explains why at the MPC’s last meeting we adopted language which made clear that if we see signs of greater persistence of inflation, and price and wage setting would be such signs, we will have to act forcefully. In simple terms this means that a 50 basis point increase will be among the choices on the table when we next meet. 50 basis points is not locked in, and anyone who predicts that is doing so based on their own view. We do not pre-announce Bank Rate decisions for the very simple reason that MPC decisions are based on deliberation at the time among nine people focused on returning inflation to the 2% target sustainably.