Conclusions for monetary policy All in all, growth prospects for the short term are somewhat more unfavourable than when we published our most recent inflation forecast. However, the major economic policy realignment in a number of important countries looks like paving the way for a recovery after a time. But this does presuppose that households and firms really do start to consume and invest. Major risks here are saving imbalances and over-investment. In Sweden, too, there has been an expansionary realignment of economic policy that is helping to strengthen household income. Provided there is an international recovery, the weak krona should have a stimulatory effect on exports. As regards inflation, the rate since April this year has been above the Riksbank’s target. The increase is mainly due to transitory factors and I envisage that it will, as before, dwindle during the spring. This presupposes, however, that the price rise does not spread to other items or lead to wage increases. Another argument for a future easing of inflationary pressure is the existence of unutilised resources as a result of the slowdown. However, in my opinion, the Riksbank must watch developments closely to ensure that the recent rise in the inflation rate actually falls and does not stick. Most indicators appear to imply that inflation will be close to the target level of 2 per cent, or at least within a small margin on one side or the other.
The financial crisis has emphasised the close links between the health and behaviour of banks and the state of the economy. We are remembering a very uncomfortable lesson from history that should not have been forgotten. But, forgotten it was. We have a very big programme of reforms under way, with the central objective that we must not let a financial crisis of this scale happen again. At the heart of this programme we are trying to knit together monetary policy and financial stability in both its macro- and micro-prudential forms, something that has not been done properly for a long time. I say that quite deliberately, because such coherence was not present prior to the reforms of 1997, so this is more than a change to recent arrangements. The new macro-prudential approach to financial stability will see the establishment of the Financial Policy Committee (FPC), charged with the primary objective of identifying, monitoring and taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system. In June, the Chancellor announced that the government would amend the Bill to give the FPC a secondary objective so that, subject to being content on the first objective, it should support the economic policy of the government, including its objectives for growth and employment. Currently, the FPC is acting in an interim capacity to undertake as far as possible the future statutory FPC’s macroprudential role.