We could afford to accommodate these upside pressures on inflation last year when there were worries that a broader deflationary trend could emerge and the recession was threatening to deepen further. But the serious downside risks to the economic outlook we saw then have since receded. The UK economy has actually bounced back more strongly than in previous recoveries, supported by both domestic and overseas demand. 11  According to data from the Council for Mortgage Lenders, both house repossessions and arrears peaked in the recent recession at lower levels than in the early 1990s, and the numbers have been falling since early 2009. BIS Review 158/2010  9  These upside pressures on inflation from import prices and VAT have been one reason that inflation has not fallen back in the way we expected in the aftermath of recession. The other significant factor is that spare capacity has not exerted as much downside pressure on cost and price increases as expected. That is partly because the margin of spare capacity appears to be less than we have seen in previous economic cycles. In the labour market, this is the flip-side of the resilience of employment and a lower level of unemployment relative to the early stages of previous recoveries. But survey evidence also suggests that there is limited spare capacity within firms to take up the slack as demand recovers.
BIS Review 21/2005  1  In order to make the basic policies in economy more harmonized and effective, I would emphasize that the banking system and the other financial institutions of the country should be more effective, open and supervised. In the final analysis, it is very important to create a real financial market, where all actors know the rules of game and obey them fairly, as it came out in the presentations of Mr. Niedermayer, Mr. Danielson, Mr. Pencapligil and Mr. Bunda. In conclusion, I would underline that the challenges ahead of us, on our way to development and integration, become easier when a spirit of cooperation exists not only within the country but also in the regional framework and broader. Thanking you for your participation in this Conference, I declare it closed. 2  BIS Review 21/2005