On the one hand, productivity growth has serially disappointed and could continue to do so in future. In that case excess demand could build more quickly and inflation could stay above target. That said, I am optimistic about the potential for Fintech and other new technologies to lead to productivity gains, either directly or by driving competition, and in turn to potentially higher, and non-inflationary, wage growth. 15  One thing to emphasise about our central forecast is that it is conditional on the market yield curve. At the time of the May Inflation Report that yield curve was pricing in roughly three rate rises over the three years covered by our forecast. And those three rate rises were one of the forces preventing excess demand rising faster in the forecast and inflation from remaining persistently above target. To demonstrate what would happen without those rate rises, we also publish a version of the forecast in the Inflation Report showing what would happen if Bank Rate remained unchanged (Chart 13). In that version of the forecast inflation does not fall back to target. Instead excess demand and domestic cost pressures build much more rapidly. And so inflation stays persistently at around 2.4%, little changed from where it is now and materially above our inflation target. 15  I set out my views on the opportunities presented by Fintech in a speech in March – see: Ramsden, D (2018), “The Bank of England – Open to Fintech”, speech at HMT’s International Finance Conference, London, 22 March 2018.
The idea that there was more slack than headline measures of unemployment were suggesting was one that I put particular weight on when I started on the MPC last autumn – in other words that there was more room for the economy to grow without generating inflation above target in the medium term. That was one reason why I voted (in the minority) for no change at the November policy meeting. 14  During the MPC’s annual  supply stocktake in February we made a judgement to revise our estimate of the economy’s equilibrium unemployment rate from 4½% to 4¼%: in other words, a judgement that there was indeed some more slack in the labour market. That left me more comfortable with the balance of risks around the MPC’s central assumptions than I had been previously. At the same time, by the February Inflation Report, annual wage growth in the data had picked up materially relative to what we had been expecting at the November meeting. In November the most recent observation for whole economy regular pay had been of just 2.1% growth (in August). And we were forecasting it to only pick up very slightly over the next six months. But by the February Report it had picked up to 2.4% growth (in November) and we were forecasting a further pick-up to 2.8% over the next few months.