In other words we are trying to maintain overall, macroeconomic, stability in a much broader sense, in the medium- and longer- term and not just the shortterm; and the Government's inflation target is the criterion against which our success, or otherwise, in achieving that broader macro-economic stability is to be measured. Our problem is that we don't know with any great precision or confidence exactly what is happening on the supply-side:- we don't know that's to say precisely what rate of growth we can hope to sustain. We don't know precisely either what is currently happening, or what is likely to happen looking forward over the next couple of years or so, to overall, aggregate, demand. And nor do we know precisely what the full impact of a change in interest rates will be on aggregate demand, or how long it will take before the full impact is felt. Ours is not a precise science. In fact it's more of an art than a science. And, although we bring as much economic and statistical science to bear as we can, we know that our forecasts, and indeed our policy judgements, are subject to a range of error. They can't be accurate to every last digit. So, we can't expect to hit the inflation target all the time, but by consistently aiming to do so we can hope to get reasonably close to the target on average over time.
The MPC will be able to make its own assessment of the impact on demand and inflation of the Growth Plan during its next forecast round leading up to its next decision meeting on 2 November. Based on what we know so far, these impacts are likely to be material for the economic outlook over the next three years, which is also the horizon relevant for monetary policy. The final shock I want to talk about is the recent turbulence in financial markets. The MPC’s forecasts are conditioned on assumptions for the outlook for various asset prices and so these movements could have a significant direct effect on the November forecasts and for the Committee’s broader assessment of financial conditions. Financial markets globally have been volatile over recent months, with notable rises in government bond yields, large moves in exchange rates and falls in risky asset prices. Overall the adjustment in market prices has been consistent with tighter monetary policy globally and the deterioration in the economic outlook. These trends were more marked for the UK through August and up to the September MPC meeting. But the UK began to really stand out over the last fortnight, which has seen significant moves in the pricing of UK financial assets. Part of that re-pricing continues to reflect broader global developments. But there is undoubtedly a UK-specific component.