The difficult judgment facing the Monetary Policy Committee is to what extent that increase in labour supply, and hence potential output, will allow a faster expansion of total money demand without upward pressure on inflation. Given the uncertainties about the supply potential of the economy, we will need to keep our eye on the ball and monitor closely the evolution of wage and cost pressures. But it is no easier for the Monetary Policy Committee to read those than for most English batsmen to read Shane Warne’s deliveries, and it is just as difficult for someone who, in terms of MPC meetings is 114 not out as it is for those still playing themselves in. The new factor is that, although wage pressures have so far been subdued, it is still not clear that earnings have been sufficiently restrained to accommodate the past rises in energy prices and the fall over the past year in the prices of our exports relative to our imports without a squeeze on profits. Ultimately, both developments must result in lower real incomes. At this point, let me save the economic commentators a degree of anguish. Nothing in this speech is meant as a hint about our decision in November, which will be based on an assessment of the outlook for inflation two years or so ahead. That decision will be taken only in November, and much can change between now and then. Rather, I have tried to explain the challenges facing the MPC when it decides on interest rates.
The negotiations between the United Kingdom and Europe are led by Michel Barnier on the European side. So we certainly defer to Mr Barnier when it comes to the political direction of those negotiations. It is clearly very positive that the UK authorities are willing to engage in a constructive way, in a practical way, in a detailed way. It will be for Michel Barnier to react to the paper. That said, and beyond the positive news in terms of how the discussion is moving on, we also believe at the ECB that private players, industry, have a responsibility to prepare for the worst outcome. So hope for the best, but prepare for the worst. In fact it seems like we have an agreement to have similar regulation in the industrial sector and the agricultural sector, but not the services sector. As we know, the financial services sector is what worries investors the most. Is this the big concern here? I will defer to Michel Barnier to pass judgement on that. What we certainly believe very strongly – as does the European Commission and as do all Member States – is that the key principles which uphold the Single Market should not be harmed. Certainly, a good solution should be found with the United Kingdom, but that cannot be at the expense of the fundamental principles that have upheld the functioning of the Single Market. Should the EU actually extend the deadline beyond March 2019 – if that’s a possibility – to have a better agreement?