[11] Just as the main reason the MPC forecasts headline inflation to rise to double digit levels at the end of this year is the impact of higher international energy and goods prices over which it exhibits little influence, the main reason the MPC projects headline inflation to fall sharply in 2023-24 back towards the 2% target is its assumption that those international energy and goods prices stabilise or fall six months from now. Of course, such assumptions may be wrong. We’ve seen that in the past. I’ll come back to the risks around the random walk forecast for commodity prices in a moment, since these are an important influence in our policy assessment. Alternative assumptions about the path for Bank Rate But first I want to underline that this emphasis on the external drivers on UK inflation is not to suggest that UK monetary policy has no influence. In line with its normal practice, in May the MPC published two inflation projections: a baseline that is conditioned on the path of Bank Rate implied by current market pricing (which peaks at 2.5%  Page 12  towards the end of 2023); and a variant projection where Bank Rate is held constant at the 1% level established at the May MPC meeting. In the baseline, headline inflation falls significantly to 1.3% at the end of the forecast horizon, a significant margin below the 2% target. By contrast, in the constant rate scenario, headline inflation remains above target throughout the forecast, reaching 2.2% at the end point.
Page 1  The economic situation and monetary policy − speech by Huw Pill Given at ACCA Cymru Wales  Page 2  Published on 20 May 2022  Huw Pill talks about what we’re doing to bring inflation down. And he gives his view on the outlook for the UK’s economy. Speech Good morning everyone. It is a great pleasure to speak here in Cardiff this morning. Thanks are due to: Lloyd Powell, Head of the Association of Chartered Certified Accountants (ACCA) Cymru Wales, for the invitation to speak here today; to Steve Hicks and Ian Derrick – the Bank’s Agents in Wales – for organising a fantastic visit, of which this is one of the highlights; and of course to all of you for coming this morning at what I am sure are busy and challenging times. On Wednesday, we learnt that UK consumer price inflation currently stands at 9.0%. [1] The MPC forecasts that it will rise to double digits in the fourth quarter of this year. For a monetary policy maker charged with achieving an inflation target of 2%, this is obviously a very uncomfortable situation. But, of course, my discomfort as an MPC member in these circumstances is as nothing to the challenges facing those most directly exposed to the current cost of living crisis. These are difficult times for many people, especially for the less well off, who spend a higher proportion of their income on energy and food, where recent price rises have been most significant.